Mumbai: In a surprise move the Bank of England has raised its base interest rate by a quarter-point to 5.25per cent, pushing it to the highest level in five years.

This is the third time the central bank is increasing its lending rates for banks since August last year amidst fears of continuing rise in inflation.

Stating that the risks of faster inflation "now appear more to the upside," the nine-member monetary policy committee increased the repurchase rate to a five-year high of 5.25 per cent.

Inflation rate in the UK exceeded the central ban's target and reached 10 per cent last year even as Europe's second-biggest economy continued to grow at its quickest pace in two years.

Investors raised rate forecasts after reports showing services industries expanding the most in a decade and house-price inflation.

The British currency also surged while the interest rate futures priced in the risk of another increase. The pound rose to $1.9510 against the dollar from $1.9381 before the decision and 0.4 per cent against the euro.

The yield on two-year gilts rose 2.4 per cent after the decision to 5.412 per cent.

This is the first time since 2000 that the Bank of England is announcing an increase in January.