Interest rates rise to 4.25 per cent
Interest rates have been raised another quarter of a per cent after inflation rose faster than expected during February.
Seven members of the Bank of England's Monetary Policy Committee (MPC) voted to increase the base interest rate from 4% to 4.25%.
They took the decision after official figures earlier this week showed a surprise increase in Consumer Prices Index (CPI) inflation in February.
Two members, Swati Dhingra and Silvana Tenreyro, voted against the rise, arguing that some of the recent increases to the base rate have not yet filtered through into the real economy.
The decision marks the 11th time in a row the Bank has hiked interest rates.
People on tracker or variable rate mortgages will see an immediate increase in their monthly payments - those on a typical tracker mortgage can expect to pay around £24 more a month while standard variable rate mortgages will increase by £15.
The surprise jump in inflation comes after food and non-alcoholic drinks prices rose by 18.3 per cent year-on-year last month, up from 16.7 per cent in January and the highest since August 1977.
Ulster Bank’s chief economist Richard Ramsey warned it could fuel further strike action and likely push the Bank of England’s monetary price committee into another interest rate hike.
The Bank of England expects gross domestic product (GDP) to increase slightly in the three months from the start of April, reversing an earlier forecast that it would fall by 0.4%.
"While subdued overall, activity was holding up better than contacts had previously expected, particularly in the consumer services sector," the Bank said.
'As interest rates rise, it's causing extra pressure on the financial system... so there is a bit of nervousness here'— Sky News (@SkyNews) March 23, 2023
Sky's @EdConwaySky provides his initial reaction to interest rates rising by 0.25%.
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The Government's decision to cancel a planned Ł500 rise in energy bills at the start of April will also help households, the Bank said.
"Real household disposable income could remain broadly flat in the near term, rather than falling significantly," the Bank said.
The Bank also remained calm about a surprise jump in February's inflation rate to 10.4%. It said that Consumer Prices Index (CPI) inflation is likely to fall significantly in the third quarter and even further than its economists had previously forecast, thanks to the energy bill support.
Following the latest interest rate increase by the Bank of England, Chancellor Jeremy Hunt said: "With rising prices strangling growth and eroding family budgets, the sooner we grip inflation the better for everyone.
"That's why we support the Bank of England's actions today and why we will continue to play our part in this fight by being responsible with the public finances, alongside providing cost-of-living support worth an average of £3,300 per household over this year and next."