Related video: How will the government help businesses with their energy bills?
The Bank of England raised interest rates by 0.5 percent in the biggest hike since 2008 as it forecast a 0.1 percent fall in GDP in the current quarter, indicating that the UK is already in recession.
The Bank’s base rate is now 2.25%, up from 1.75% when the rate was last raised in August. It is the seventh consecutive time the base rate has risen and more increases are expected later this year, with some analysts forecasting a peak of 3 percent by the end of the year.
The decision to raise rates is an effort by the Bank to make a bid to deal with inflation or rising prices. The Bank, which is independent of the government, aims to keep inflation below 2%.
But inflation, fueled by Russia’s war in Ukraine and rising energy costs, currently stands at 9.9% and is expected to rise further.
key points
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Summary: How do interest rates affect inflation?
An interest rate is a measure that tells you how much it costs to borrow money, or how much the benefits of saving are.
If you borrow money, usually from a bank, the interest rate on that money is the amount you will be charged for borrowing it.
It is an additional charge to the total loan amount and will be shown as a percentage of the total.
My colleague Holly Bancroft reports:
Everything you need to know about interest rates and how they affect you
Borrowing costs at their highest level in 14 years
Matt Mathers September 22, 2022 1:15 p.m
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The government’s “reckless” borrowing that imposes mortgage costs
Liz Truss’ “reckless” borrowing plans to fund tax cuts are driving up mortgage costs, Labor has said.
Shadow chancellor Rachel Reeves accused the government of losing “control of the economy”.
“By putting such huge unfunded and costless sums into loans, they are driving up mortgage costs for everyone,” Ms Reeves added.
“Their reckless approach is an immense risk to family finances.”
Ms Truss says the tax cuts will grow the economy and increase government revenue.
Matt Mathers September 22, 2022 12:58 p.m
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Inflation will reach a maximum of 11 percent, the Bank predicts
Inflation could hit 11 percent, the Bank of England predicted within minutes of today’s interest rate announcement.
Monetary policy committee officials said prices would rise less than expected in August and then peak in October.
The Bank previously estimated that inflation would reach a maximum of 13%. The government’s guarantee on energy bills was the reason for the most optimistic forecast.
However, the Bank warned that “energy bills will continue to rise and, combined with the knock-on effects of rising energy costs, inflation is expected to remain above 10% over the coming months, before start going back.”
Matt Mathers September 22, 2022 12:46 p.m
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Be prepared to switch banks
Money saving expert Martin Lewis has told savers to be “prepared to switch” banks as many will not pass on today’s rate rise to their customers.
Higher interest rates mean that people earn more money with the cash they have in their savings accounts.
They also mean mortgages can be more expensive.
Mr. Lewis has this advice:
Matt Mathers September 22, 2022 12:33 p.m
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Three members of the Bank’s committee voted in favor of a higher increase of 0.75%.
Five members of the Bank of England’s monetary policy committee voted to raise its key interest rate from 1.75% to 2.25%, while three voted to a sharper increase to 2.5%, the Bank said.
He said uncertainty over the outlook for energy prices has fallen after the government announced it would cap bills at £2,500 for the average household for two years.
The committee also voted unanimously to reduce quantitative easing by £80bn over the next 12 months to £758bn.
Matt Mathers September 22, 2022 12:18 p.m
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The bank expects GDP to fall by 0.1 in the current quarter
The Bank of England has said it now expects GDP to fall by 0.1% in the current quarter, indicating the country is already in recession.
Matt Mathers September 22, 2022 12:08 p.m
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The bank raises the rate by 0.5 percent
The Bank of England has raised interest rates by 0.5% in the biggest increase since 2008.
The Bank’s base rate is now 2.25%, up from 1.75% when the rate was last raised in August.
It is the seventh consecutive time the base rate has risen and more increases are expected later this year, with some analysts forecasting as high as 3% by the end of the year.
My colleague Thomas Kingsley has more on this story below:
Interest rates rise 0.5% as Bank of England says UK ‘already in recession’
UK interest rates are now at their highest level since the 2008 financial crisis
Matt Mathers September 22, 2022 12:06 p.m
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Crypto market crashes to yearly lows after interest rates rise
Bitcoin and the broader crypto market fell near annual price lows on Thursday after a move by the US Federal Reserve to raise interest rates to their highest level in nearly 15 years.
The interest rate hike was widely expected, meaning the fall in the cryptocurrency market was not as bad as some analysts had feared, although the Bank of England is also expected to raise rates on Thursday .
Anthony Cuthbertson reports:
Crypto market crashes to yearly lows after interest rates rise
Cryptocurrency market loses nearly $100 billion in value over past seven days despite successful Ethereum merger
Matt Mathers September 22, 2022 11:58 am
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The former member of the Bank’s committee expects an increase of 0.75%.
A former member of the Bank’s monetary policy committee expects a rate hike of 0.75%.
Sir John Gieve, who helped set interest rates between 2006 and 2009, spoke to the BBC earlier.
“I expect interest rates to continue to rise at future meetings and I think the markets generally expect interest rates to rise above 3 percent later this year,” he said.
Matt Mathers September 22, 2022 11:52 am
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Borrowers were told to “buck up” ahead of the expected interest rate hike
A broker has warned borrowers to “tighten their belts” ahead of an expected rise in interest rates from the Bank.
Lewis Shaw, of agent Shaw Financial Services, said: “Borrowers should fasten their seat belts.
“The writing is on the wall for a significant increase in bank rates and lenders have raised rates pre-emptively, because they don’t want to be stuck re-pricing their deals.”
Matt Mathers September 22, 2022 10:10 am