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STORY: The Bank of England raised its key interest rate by a quarter of a percentage point on Thursday to a 15-year peak of 5.25%.

It gave a new warning that borrowing costs were likely to stay high for some time.

In contrast to the U.S. Federal Reserve and the European Central Bank, which also raised rates last week, it did not suggest hikes were about to end as it battles high inflation.

"High inflation hurts the least well-off the most.''

This was the bank's Governor Andrew Bailey:

''We expect inflation to take a further step down in the July data, which will be published in two weeks time. We think that will come down to around 7% at that point, followed by another larger step down in October's data, which will be published in November to around about 5% on that basis.''

The Bank of England forecast inflation would fall to 4.9% by the end of this year - a faster decline than it had predicted in May.

That would be a relief for Prime Minister Rishi Sunak, who pledged in January to halve inflation this year, a goal which had looked challenging.

Bailey said it was too soon to speculate about whether rates had peaked and when they might be cut again.

Sterling briefly dipped after the data and financial markets moved to price in a roughly two-thirds chance of another quarter-point interest rate rise to 5.5% in September.

Bailey said the pace of pay growth was above the BoE's previous forecasts, which suggested it would take longer for the knock-on effects of high inflation to fade than it did for them to appear.

British inflation hit a 41-year high last year and has fallen more slowly than elsewhere.

In June it stood at 7.9%, the highest of any major economy.