The Bank of England has raised interest rates by a quarter percentage point to prevent inflation from choking the nascent economic recovery .
In a statement accompanying the rate decision the bank said that the global economic upswing has been maintained. In Britain, output growth has been at or above trend and business surveys are consistent with further strengthening.
"Retail spending continues to be robust, underpinned by income growth and unexpectedly strong house price inflation. Investment prospects have improved", the bank said.
The bank said consumer prices have been below the 2 per cent inflation target and are likely to remain so in the near term.
But earnings growth has picked up and commodity prices have risen sharply.
"With a small and diminishing margin of spare capacity, inflationary pressures are likely to build despite a higher level of sterling than at the beginning of the year, " the bank added.