The Bank of England’s Monetary Policy Committee (MPC) has confirmed as widely expected that interest rates will rise by 0.5% to 1.75%, in what is the biggest single rate rise since 1995.
It also warned that the UK is likely to fall into recession this year.
The members of the MPC voted overwhelmingly in favour of the 0.5% rise by 8-1, with only one member favouring a more moderate 0.25% rise in rates.
It is the UK’s sixth consecutive rate rise since last year’s low rate of 0.10%.
Inflationary pressures have predictably been the catalyst for the rate increase, with UK CPI inflation currently pegged at 9.4%, and the MPC now expect it to accelerate to a peak of just over 13% in the fourth quarter of this year.
The new 1.75% rate reflects the doubling of wholesale gas prices since May, owing to Russia’s determination to weaponize its gas supplies to Europe, which is feeding through to retail energy bills hugely affecting consumer spending.
It is also anticipated that inflation will remain at similarly elevated levels next year, especially as the UK price cap for energy prices is set to spiral upwards by 70% in October, leaving potential annual fuel bills of around £3,500 per year.
Overall, the MPC hope that the latest decision will lead to a return to the Bank of England’s 2% inflation target in the medium term, but there still could be further interest rate increases forthcoming if deemed necessary to effectively combat the menace of inflation.