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Interest rates UK - live: Bank of England reveals hike to highest level in 13 years

·15-min read
The Bank of England is expected to announce its decision on interest rates at midday (Getty Images)
The Bank of England is expected to announce its decision on interest rates at midday (Getty Images)

The Bank of England has raised interest rates to their highest level in 13 years as it looks to tackle the cost of living crisis gripping the UK.

It announced an increase from 0.75 per cent to 1 per cent on Thursday, a level which has not been seen since the aftermath of the financial crisis in early 2009.

The Bank of England’s Monetary Policy Committee (MPC) voted in favour of the rise with six votes to three.

Those who opposed it - Jonathan Haskel, Catherine Mann, and Michael Saunders - wanted a larger increase to 1.25 per cent, the central bank said.

It was the fourth time in a row the committee has voted in favour of an interest rate hike, as the UK grapples with soaring inflation driven by rising energy costs.

In its report on Thursday, it also warned the economy will go into reverse and inflation- will peak at more than 10 per cent as the Ukraine war compounds cripppling living costs.

Key Points

  • Bank of England raises interest rates to highest level in 13 years

  • Inflation to soar to as high as 10 per cent, central bank forecasts

  • Fourth rise in a row ‘still fairly low by historic standards’

  • Value of pound drops following rate hike and Bank of England forecasts

  • What has the Bank of England forecast for the UK economy?

08:41 , Zoe Tidman

Good morning. Welcome to our live coverage as we await the Bank of England’s decision on interest rates.

What are we expecting today?

08:59 , Zoe Tidman

The Bank of England is poised to raise interest rates to their highest level in 13 years as it seeks to rein in rising living costs.

Its Monetary Policy Committee (MPC) meets on Thursday to deliver its latest decision on rates.

Ben Chapman, our business correspondent, has more:

Mortgage borrowers face living-costs squeeze as rates look set to rise

Warning over mortgages

09:23 , Zoe Tidman

Paul Johnson from the Institute For Fiscal Studies has warned of the impact on people’s mortgages of the expected interest rates hike.

“We are still at historically staggeringly low levels of interest rates,” he told Radio 4’s Today programme. “So you look at it that way and think one quarter of a percent, half a percent, still a very low level, that doesn’t look very dramatic.

The director added: “On the other hand, of course, if you’ve got a mortgage and it goes up by half a percent or 1% proportionally that’s a very big increase.

“That could be doubling your mortgage interest payments over a period of time, so even small changes now, at least down the line once people certain fixed rates run through, could have really big effects on people who have got significant mortgages.”

PA

Another one to come?

09:46 , Zoe Tidman

Members of the Monetary Policy Committee from the Bank of England have already raised rates at each of its past three meetings to try to rein in inflation.

The one today is expected to increase interest rates to 1 per cent.

Economists from Investec, an international banking group, are pencilling in another rate hike in August to 1.25 per cent.

What else will the Bank of England discuss today?

10:17 , Zoe Tidman

The Bank of England is not only going to be looking at interest rates today.

It is also predicted to ramp up its forecasts for inflation and cut its outlook for the economy.

The Bank is also expected to clarify how it plans sell off some of its £847 billion in government bonds, which it has built up as part of its quantitative easing programme launched amid the 2008 financial crisis.

More to come around 12pm today.

Decision comes weeks after interest rates already raised

10:40 , Zoe Tidman

Before the decision is announced today, here is a reminder of what happened the last time the Monetary Policy Committee met on interest rates in mid-March:

Bank of England raises key interest rate as pressure mounts on households

‘Still fairly low by historic standards'

11:01 , Zoe Tidman

Anna Isaac, our economics editor, has tweeted an important point to note ahead of the forecast interest rate hike today.

The predicted increase would put it at the highest level in a decade, but...

Soaring inflation

11:15 , Zoe Tidman

The interest rate is widely predicted to go up today as the Bank of England looks to curb soaring inflation.

It jumped to a 30-year high last month. See here:

UK inflation rises at the fastest pace in 30 years

Midday decision approaches

11:40 , Zoe Tidman

Not long now until the Bank of England will confirm any changes to the interest rate. Decision expected at midday.

1 per cent rise in interest rates confirmed

12:02 , Zoe Tidman

The Bank of England has confirmed interest rates are to rise to 1 per cent.

BREAKING: Bank of England raises interest rates to highest level in 13 years

12:02 , Zoe Tidman

Bank of England raises interest rates to highest level in 13 years

Forecasts on growth and inflation

12:23 , Zoe Tidman

In a grim set of forecasts, the Bank has predicted growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.

It also inflation will peak at more than 10 per cent, after hitting a three-decade high of 7 per cent last month.

Value of pound drops

12:26 , Zoe Tidman

The value of the pound has swung lower following the rise in interest rates and forecast of soaring inflation.

The pound moved 0.18 per cent lower to 1.247 against the US dollar and tumbled by 0.6 per cent to 1.178 against the euro.

PA

What else has the Bank forecast for the UK economy?

12:37 , Zoe Tidman

Unemployment

  • Rate of unemployment will continue to ease back to as low as 3.6 per cent

  • But... it will jump back up to 5.5 per cent within three years

Growth

  • UK will technically avoid a recession, which is defined as two quarters of negative growth

  • Economy forecast to contract in the final quarter of 2022

  • The Bank forecasts zero growth in 2023, followed by 0.2 per cent in 2024 and 0.7 per cent in 2025

Income

  • Sky-high inflation will see household disposable income plunge by 1.75 per cent this year - the second highest on record

  • Overall real income will tumble by an unprecedented 3.25 per cent this year and fall again in 2023 before beginning to recover

  • Rising costs will hammer household and business finances, but “this was something monetary policy was unable to prevent”.

‘Considerable alarm among households'

12:47 , Zoe Tidman

Suren Thiru from the British Chambers of Commerce said:

“The decision to raise interest rates will cause considerable alarm among households and businesses given the rapidly deteriorating economic outlook and mounting cost pressures many are facing.

“The Bank of England faces an unenviable trade-off between soaring inflation and a wilting economy.

“However, higher interest rates will do little to address the global headwinds and supply constraints driving this inflationary surge.

“It also raises the risk of recession by damaging confidence and intensifying the financial squeeze on businesses and consumers.”

Hit to household incomes ‘unavoidable’, Bank of England governor says

12:54 , Zoe Tidman

Bank of England governor Andrew Bailey has said a big hit to real household incomes was “unavoidable” and that monetary policy was “limited” in what it could to mitigate that hit.

Energy bills will have bigger impact on living costs than interest rate hike, Bank deputy governor says

13:14 , Zoe Tidman

Ben Broadbent, the Bank’s deputy governor, told a press conference that while mortgage payments would increase as a result of Thursday’s decision, the impact on living costs was “a small fraction” of that caused by rising energy bills.

Interest rate hike ‘potential source of worry for people with significant amounts of borrowing'

13:40 , Zoe Tidman

The chief executive of Money Advice Trust says the rate rise is “small in scale” but still a “potential source of worry for people with significant amounts of borrowing” when considering other rising costs.

“Whilst the ongoing impact of higher inflation is likely to be felt much more strongly, we know that any small increase in costs can push households with stretched budgets into difficulty,” Joanna Elson CBE said.

‘Immediate effects’ on finances

14:00 , Zoe Tidman

Martin Lawrence from Wesleyan, the specialist financial services mutual, said the interest rate hike will have “immediate effects on individuals’ finances”.

“One group who might be negatively affected are those with a tracker or standard variable rate mortgage, which can change in line with fluctuations in the Bank of England’s base rate,” he said.

“Following today’s announcement, households already struggling to make ends meet could end up potentially paying hundreds of pounds more in annual repayments.”

The director of investments added: “On the other hand, interest rate rises can be good news for savers. However, any extra interest will still fall far short of current inflation rates, meaning hard-earned money held in simple savings accounts will continue to be at risk of losing value in ‘real terms’ – gradually buying less and less over time.”

Full story: Recession warning as inflation soars to 10 per cent and Bank of England hikes interest rates

14:25 , Zoe Tidman

The UK economy is set to shrink as soaring energy bills cause inflation to spike to more than 10 per cent, the Bank of England has warned, as it hiked interest rates to the highest level in 13 years.

Inflation is forecast to jump into double-digits in October when households are hit with a further 40 per cent rise in energy bills, the Bank’s Monetary Policy Committee (MPC) said on Thursday.

Ben Chapman, our business correspondent, has the full story:

Recession warning as Bank of England hikes interest rates

‘This underlines how the Tories are making the cost of living crisis worse,’ Labour says

14:39 , Zoe Tidman

Here is the shadow chancellor’s take on the grim forecasts today:

Martin Lewis on interest rate hike

14:51 , Zoe Tidman

And here is the Money Saving Expert himself on what the hike in interest rates will mean:

‘All pain and no gain'

15:26 , Zoe Tidman

Gary Smith, the GMB union general secretary, said the interest rate hike was “all pain and no gain and will only help push the UK closer to recession”.

“This doubling-down on further rate rises will increase costs on homeowners, hit jobs and stifle business investment,” he said. Once again, the working people of this country will pay the price.”

Hike ‘will raise bar even higher’ for homeownership

15:36 , Zoe Tidman

Lynda Clark from First Time Buyer Group, said: “Homeownership continues to be a pressure point, and this announcement will raise an impossibly high bar even higher.”

She said: “This announcement could mean less attractive mortgage deals entering the market, as banks will ask for higher monthly payments in line with the interest rate rise. Indeed, many first time buyers hoping to buy on the open market will now be completely priced out.”

Everyone to be affected by ‘return of double-digit inflation’, think-tank says

15:50 , Zoe Tidman

James Smith from the Resolution Foundation think-tank said the decision to increase interest rates was important to “stop high inflation becoming entrenched”.

“It will have relatively little immediate impact on households in the short term, although in time the intention is for unemployment to rise,” he said.

He added: “But if few households will feel a small interest rate rise immediately, everyone will be affected by the return of double-digit inflation as the Bank are now forecasting. This will further tighten Britain’s cost of living crisis, with families facing an average income loss of around £1,200 this year.”

‘Struck between a rock and a hard place'

16:32 , Zoe Tidman

Economists say they believe the Bank is walking a tightrope to avoid stagflation - a situation where inflation is high but economic growth is low.

Raising interest rates to combat inflation could mean the economy stalls, especially when inflationary pressures are coming from overseas with higher energy costs.

Laith Khalaf at AJ Bell said the UK economy was “on the brink of toppling backwards” and “too many nudges” from the Bank could trigger a recession.

“This shows the Bank is stuck between a rock and a hard place, trying to act tough on inflation, while at the same time not doing too much damage to economic growth,” he said.

Oliver Blackbourn from Janus Henderson Investors said: “The range of views on the committee is indicative of the sort of Gordian knot that the current economic situation has created for central bankers.

“Stagflation is one of central bankers’ worst fears and the UK looks increasingly ensnared, more so than many other developed markets.”

PA

Average household will be £1,200 worse off, says Resolution Foundation

16:55 , Rory Sullivan

The Resolution Foundation, a think tank which aims to improve the lives of those on middle and low salaries, has warned that the average household’s annual income will drop by around £1,200.

Here’s its explanation, which follows the Bank of England’s decision to hike interest rates to 1 per cent:

Economists disagree about further potential interest rate rises

17:25 , Rory Sullivan

In response to today’s decision to increase interest rates, there is disagreement about whether further rate rises are likely.

Samuel Tombs, the lead UK economist at Pantheon Macroeconomics, said: “The rhetoric here isn’t strong enough to support markets’ view that the Bank Rate will rise to 2.5 per cent early next year, which would represent the largest increase over an 18-month period since 1989. The new forecasts reinforce this message.

“We continue to expect the committee to keep Bank Rate at 1.00 per cent at next month’s meeting, before raising it to 1.25 per cent in August and then keeping it at that level well into 2023.”

However, Paul Dales, chief UK economist at Capital Economics, disagreed, arguing that rates could reach 3 per cent by 2023.

PA

‘We are nowhere near the end of this crisis’

17:41 , Rory Sullivan

Inflation is due to peak at 10 per cent towards the end of the year and a recession is increasingly likely, according to today’s forecasts from the Bank of England.

Dave Innes, the head of economics at the Joseph Rowntree Foundation, said the predictions showed the cost-of-living crisis will be with us for a long time.

“Today’s projections show that we are nowhere near the end of this crisis... Many will now be facing a winter of grinding daily hardship and worry about being able to access the essentials we all need to live,” he said.

House prices expected to increase, says Savills

18:02 , Rory Sullivan

Commenting after interest rates rose to 1 per cent, Lucian Cook, head of residential research at Savills, said:

“Despite some of the macro-economic pressures and today’s rate rise, it remains difficult to see the trigger for a meaningful house price correction, given the strength in the employment market and the fact interest rates remain low in a historical context.

“And given the mismatch between supply and demand we expect constrained stock to continue to drive further short-term price growth.

“This said the four successive rate rises and the rising cost of living are likely to bring more caution over coming months which will mean that rate of price growth slows progressively, potentially to low single digit figures in coming years.

“That will probably come as a relief would-be buyers, many of whom will feel they have been chasing the market over the past two years having seen intense competition for that stock which has been put to the market.”

Interest rates: What are they and how do they affect inflation?

18:26 , Rory Sullivan

My colleague Holly Bancroft has this helpful explainer on interest rates and inflation:

All you need to know about interest rates and how they affect you

Companies should consider ‘hardship’ of others when setting executive pay, Governor of Bank of England advises

18:45 , Rory Sullivan

Bank of England governor Andrew Bailey has told firms to consider “hardship” of others when setting executive pay.

Speaking on Thursday shortly after interest rates jumped by 0.25 per cent to 1 per cent, he advised companies: “In the situation we are in, which is very difficult for low-income households and particularly difficult where inflation is concerned on things like energy and food... it’s important to bear that in mind when you are thinking about these things.”

Value of the pound takes plunge after Bank of England announcement

19:11 , Emily Atkinson

The value of the pound has plummeted after the Bank of England increased interest rates and forecast 10 per cent inflation later this year.

It moved 0.18 per cent lower to 1.247 against the US dollar and tumbled by 0.6 per cent to 1.178 against the euro.

Bank of England governer says he turned down pay rise

19:28 , Emily Atkinson

Andrew Bailey, the governor of the Bank of England, has told Channel 4 News that he turned down a pay rise on his £575,000 annual salary.

Four graphs appear to show UK’s looming economic disaster

19:59 , Emily Atkinson

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