The Bank of England has hiked the interest rates it charged from commercial banks for loans from from 0.75% to 1% from last week. This is the highest hike in 13 years and the fourth increase since December, as the Bank of England battles to tame skyrocketing inflation. The Bank's policymakers voted to raise rates from 0.75% to 1% - a level not seen since early 2009 - as the Ukraine war compounds a crippling cost-of-living crisis.
The fourth rise since December 2021 comes as soaring food, energy and fuel prices saw inflation - the measure of the rising cost of goods - hit a 30-year high of 7% in March. Threadneedle Street said inflation is likely to be at 10% by the end of the year.
As a result, households are curtailing in their spending which is hitting growth. Following the latest rise in interest rates, two million homeowners will see an immediate increase in their monthly mortgage repayments with other loans potentially getting more expensive too. But BoE governor Andrew Bailey defended raising rates at a time when the cost of living is increasing, saying that the risk of letting inflation get out of control was higher.
It said the impact of the Ukraine war on household gas and electricity prices was largely to blame, following the increase in the energy price cap in April and a further expected rise in October which could push household bills up to £2,800 a year. Bailey said there could be a 40% rise in the price cap based on current prices.