Interest rates – live: Mortgage warning as Bank raises rates to highest level since 2008
Experts have warned of mortgage increases after the Bank of England hiked up interest rates to the highest level since 2008 amid soaring inflation.
Rates have risen from 4.25 per cent to 4.5 per cent, representing a 0.25 percentage point increase, as the Bank of England aims to bring UK inflation down to its 2 per cent target.
Thomas Jackson, Managing Director for Cooper Associates Mortgages, said the rise will affect the property market, with lenders already raising their rates.
He said: “This next increase will have further consequences on homeowners and home buyers. Anticipating today’s rise, mortgage lenders have already raised their rates.
“Those on tracker mortgages and standard variable rates (SVR), are likely to see their monthly payments increase. The average SVR is now above 7%, its highest since 2008. Those on fixed mortgages are ok for the time being but anyone due for remortgage soon should put talking to a mortgage adviser to the top of their list. “
It comes as UK Consumer Prices Index (CPI) inflation remained firmly in double digits in March.
Key Points
Interest rates rise to highest level since 2008 to curb inflation
Warning mortgages could increase as Bank raises rates
Savings rates offered by banks at their highest since financial crisis
Why are interest rates going up – and how does raising them help inflation?
Mortgage warning as Bank raises rates to highest level since 2008
12:02 , Martha Mchardy
Thomas Jackson, Managing Director for Cooper Associates Mortgages, said the interest rate rise will affect the property market, with mortgage lenders already raising their rates.
He said: “This next increase will have further consequences on homeowners and home buyers. Anticipating today’s rise, mortgage lenders have already raised their rates.
“Those on tracker mortgages and standard variable rates (SVR), are likely to see their monthly payments increase. The average SVR is now above 7%, its highest since 2008. Those on fixed mortgages are ok for the time being but anyone due for remortgage soon should put talking to a mortgage adviser to the top of their list.“
Bank of England to raise rates to highest level since 2008
08:54 , Martha Mchardy
The Bank of England is expected to raise interest rates to the highest level since 2008 as inflation continues to soar.
Rates are expected to rise from 4.25 per cent to 4.5 per cent in the midday announcement, representing a 0.25 percentage point increase. The Bank’s aim in elevating interest rates is to bring UK inflation down to its 2 per cent target.
It would be the 12th time in a row that policymakers at the Bank of England have raised rates, making it even more expensive to borrow and pushing banks to lift savings rates.
It comes as UK Consumer Prices Index (CPI) inflation remained firmly in double digits in March, squeezing household budgets and proving more stubborn than expected.
In February, the Bank of England said it expects inflation to fall sharply over the rest of the year. But with CPI remaining above double-digits since then, the latest report will be watched closely for signs this forecast has changed.
Ellie Henderson, from Investec Economics, said the “clock is ticking” on the Bank’s monetary policy tightening cycle, and an increase on Thursday could be the last.
She said: “As things stand and considering the sharp downward influences on inflation in the coming months, namely from energy but also from cooling food and goods price inflation, we suspect that this could be the last hike by the Bank of England in this cycle.”
However, there is still a “high chance” the Bank will decide to lift rates by 0.25 percentage points again in June, especially if inflation remains stubbornly above target, she added.
“What is clear is that the days of successive interest rate hikes in this economic cycle are limited, but the exact endpoint is clouded with uncertainties.”
Watch: Bank of England expected to raise interest rates for 12th time in a row
08:56 , Martha Mchardy
Martin Lewis issues warning ahead of latest interest rates announcement
08:57 , Martha Mchardy
Personal finance guru Martin Lewis has urged people in the UK to take steps to shore up their savings ahead of the Bank of England’s looming interest rates announcement.
In what would represent the 12th consecutive hike, the UK’s central bank is expected to push its base interest rate up by a further 0.25 points – to a 14-year high of 4.5 per cent.
As a result, the savings rates offered by banks are also at their highest since the financial crisis.
Despite the potential returns, the MoneySavingExpert founder warns that millions of people still have money in savings and cash ISAs which are “earning far less than 1 per cent – with banks taking advantage of customer inertia”.
Given the speed at which rates have changed in recent months as the Bank of England seeks to tame the starkest levels of inflation in four decades, those who switch to savings accounts with the new and far higher rates “may be able to get quintuple the interest in minutes”, Mr Lewis said.
Andy Gregory reports:
Martin Lewis issues warning ahead of latest interest rates announcement
Policymakers ‘will no longer predict a recession’, economist claims
09:19 , Martha Mchardy
Policymakers “will no longer predict a recession,” an economist has claimed.
Klaus Baader, the global chief economist at French bank Societe Generale said it is likely policymakers will no longer predict a recession, having previously anticipated the UK would dip into a short and shallow recession during the first quarter of the year.
It comes as the Bank of England is expected to raise interest rates to 4.5 per cent today - their highest level since 2008.
Mr Baader agreed that while a 0.25 percentage point increase in interest rates is expected from the Bank, “what is less certain is what it will do afterwards”.
The outcome will help economists determine whether interest rates will rise above 4.5% this year.
New quarterly gross domestic product (GDP) figures will be released on Friday, which is expected to show the UK economy grew over the first three months of the year.
Why are interest rates going up – and how does raising them help inflation?
09:33 , Martha Mchardy
The Bank of England has raised interest rates for the twelfth consecutive time today as it continues trying to tame sky-high inflation.
At 10.1 per cent, inflation – or rising prices – is still far off the Bank’s target of 2 per cent. However, this rate is slightly lower than what it was when interest rates were last raised in March, by 3 per cent.
What are interest rates?
An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards of saving are.
If you are borrowing money, typically from a bank, the interest rate on that money is the amount you will be charged for borrowing it.
It is a charge on top of the total amount of the loan and will be shown as a percentage of the overall.
Higher percentages mean paying more money to the lender for borrowing the money.
If you are saving money in a bank account, the interest rate on that money is the amount you will accrue on top of your savings. Banks will pay you a percentage of your total savings, typically at the end of the year.
How do interest rates affect inflation?
Low interest rates are used to discourage people from piling up their money in savings. High interest rates encourage saving because people get a better return for the money you are putting away.
This in turn has an effect on the price of goods.
When interest rates are low, people might spend more and this might cause retailers to put up the price of goods.
When rates are high, demand might fall as people put more money into their saving pots. This, in theory, should drive down the prices of goods and services.
However, rising prices are not a direct result of interest rate changes. Other things, including the supply of money and underlying costs, affect prices and cause inflation.
Interest rates can only help manage inflation.
All you need to know about interest rates and how they affect you
Decision to ditch plans to scrap thousands of EU laws a ‘great missed opportunity’, Jacob Rees-Mogg claims
09:40 , Martha Mchardy
Jacob Rees-Mogg has accused Prime Minister Rishi Sunak of breaking his word over the Government’s decision to ditch plans to scrap thousands of EU laws by the end of the year.
The Tory politician called the reversal of the decision a “great missed opportunity”, and claimed scrapping the laws would help tackle inflation.
Speaking to BBC Radio 4’s Today Programme, he said: “This is unfortunately a great missed opportunity.
“The Bank of England will be meeting later on and is likely to raise interest rates because we have an inflationary problem.
“One of the other ways to help tackle inflationary problems is supply side reforms – that is, getting regulations that hold the economy back removed.
“Over decades, we introduced rules from the European Union that made us less economically competitive.
“Setting a deadline theoretically makes Whitehall work – without a deadline, nothing will happen, and we will retain these laws for a long time.”
How does raising interest rates affect me and my mortgage?
09:41 , Martha Mchardy
Changes in the Bank of England’s base rate, which is the interest rate at which high street banks borrow from Threadneedle Street, has a knock-on effect on the interest rates that the former then set their mortgage borrowers.
The changes will also affect anyone with savings and anyone who is borrowing money from banks.
It will also have a wider effect on the economy. By raising the base interest rate, the BoE is hoping to temper soaring inflation and help with the cost of living crisis.
Rishi Sunak ‘may fall short’ on pledge to halve inflation this year
09:47 , Martha Mchardy
Prime minister Rishi Sunak is at risk of failing in his pledge to halve inflation this year, according to an economic think tank.
The National Institute of Economic and Social Research (Niesr) forecast that inflation will remain persistently higher than expected over the rest of 2023, in a worrying prediction for under-pressure households.
In its latest set of projections, the forecaster said inflation is expected to drop from its current level to 5.4% by the end of 2023.
The Prime Minister pledged to cut UK inflation in half in January when the figure was 10.1%.
The latest figures from the Office for National Statistics (ONS) showed inflation still at 10.1% in March after a surprise acceleration in February.
The figure has rocketed over the past year on the back of spiking energy prices after the Russian invasion of Ukraine and more recent jumps in food costs.
Niesr said inflation will continue to cool but households will see a 0.7% drop in real disposable income over the year.
The predictions are significantly higher than those of the Government’s official forecaster, the Office for Budget Responsibility (OBR), which estimated in March that inflation would drop to 2.9% by the end of the year.
Official inflation readings have come in higher than expected since the forecasts were made.
Niesr’s fresh estimates come amid continued pressure on the Bank of England to deal with inflation.
The central bank is expected to hike rates by 0.25 percentage points to 4.5% later on Thursday.
The think tank predicted that the Bank was likely to further increase rates to a peak of 4.75% in the coming months, heaping more pressure on households.
Stephen Millard, deputy director for macroeconomic modelling and forecasting at Niesr, said: “Despite recent positive news, we still expect sluggish GDP growth over 2023 and a fall in aggregate real personal disposable income, driven by the persistently high rate of inflation.
“This fall in real incomes creates a need for the Government to intervene to support those households less able to cope.”
Interest rates expected to rise again – marking the highest level since 2008
10:44 , Martha Mchardy
Britain’s interest rates are expected to rise to the highest level since 2008.
According to economists and the financial markets, the base rate will rise for the 12th consecutive time as inflation continues to soar.
Policymakers at the Bank of England are expected to raise interest from 4.25% to 4.5% on Thursday, representing a 0.25 percentage point increase.
Read the full story:
Interest rates expected to rise again – marking the highest level since 2008
What is inflation?
11:30 , Martha Mchardy
Inflation is a measure of how fast prices are rising for shoppers across the country. The Bank of England is meant to try to keep inflation as close to 2% as possible at all times.
The main tool it has to do this is interest rates. By putting up the base rate it encourages people to save rather than borrow.
This reduces the amount of demand for products and services, therefore helping to keep pries under control.
Interest rates rise to highest level since 2008
12:04 , Martha Mchardy
The Bank of England has raised interest rates to 4.5% from 4.25% - the highest level since 2008, the Bank of England has announced,
The rise comes amid soaring inflation, which is currently at 10.1%.
Bank of England raises interest rates for 12th consecutive time to curb rising inflation
12:05 , Martha Mchardy
UK interest rates are to rise to their highest level in 15 years after the Bank of England announced a 12th consecutive increase.
Policymakers said base rates will move from 4.25% to 4.5%, representing a 0.25 percentage point increase.
It is the highest level since 2008, amid soaring inflation, and threatens higher bills for hundreds of thousands of homeowners.
Alastair Jamieson reports:
Bank of England raises interest rates for 12th time to curb rising inflation
Inflation to fall slower than expected, BoE says
12:10 , Martha Mchardy
UK inflation is expected to fall slower than previously thought as food prices remain stubbornly high, the Bank of England has said, as it raised interest rates for the 12th time in a row.
Seven members of the Bank’s Monetary Policy Committee (MPC) voted to increase the base interest rate to 4.5% from 4.25%.
Food prices have stayed higher for longer than expected, the Bank said, partly due to Russia’s war in Ukraine and poor harvests in some European countries, ramping up the cost of living for households across the UK.
It means Consumer Prices Index (CPI) inflation is expected to decline less rapidly than the Bank predicted in its last report in February.
Inflation is still expected to drop sharply from April this year, as energy prices decline and household bills are subsidised, the MPC said.
“There remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target,” it added.
‘Repeated surprises about the resilience of demand’, says BofE as interest rates rise
12:13 , Martha Mchardy
Members of the Bank of England’s Monetary Policy Committee (MPC) said there had been “repeated surprises about the resilience of demand” amid rising interest rates.
The Bank also said that inflation had been stronger than expected as the price of food and other goods were higher.
Two out of seven of the members of the MPC wanted to keep rates unchanged, saying that inflation was already expected to fall considerably this year without the need to rise the rate again.
They also said a lot of the impact of rising rates has not yet come through into the economy. The Bank estimates that around a third of the impact of rates increases has been passed through.
Scottish families ‘paying price of Tory failure’, says SNP MP as interest rates rise
12:15 , Martha Mchardy
SNP spokesman Stewart Hosie MP said Scottish families would be “paying the price for Tory failure” after another rise in interest rates was announced.
He said: “Millions of Scottish families are paying the price for Tory failure as the cost of living soars - showing exactly why Scotland needs independence to escape the damage of Westminster control.
“The SNP is the only party offering a real alternative. The Tories and pro-Brexit Labour Party are making the cost of living worse by imposing cuts and a hard Brexit that’s harming the economy.
“With interest rates rising, yet again, households across Scotland are being forced to foot the bill for this Tory mortgage premium, with payments increasing by hundreds of pounds.”
12:16 , Martha Mchardy
In a report, the Bank of England’s Monetary Policy Committee (MPC) said: “In the modal forecast conditioned on market interest rates, and taking account of stronger paths for food prices and demand growth, CPI inflation is expected to decline somewhat less rapidly compared with the February report.”
Speaking about the troubles that have hit banks in recent months, it added: “Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments.”
The Bank said it expects the banking crisis will reduce US GDP by around 0.25 percentage points, but will have a much smaller impact in Europe.
It added: “The committee judges that growth over much of the forecast period will be materially stronger than in the February report.
“This reflects stronger global growth, lower energy prices, the fiscal support in the spring Budget and the possibility of lower precautionary saving by households than previously thought.”
People ‘wracked with anxiety’ after news of interest rates rise, shadow chancellor claims
12:22 , Martha Mchardy
Shadow chancellor Rachel Reeves repeated concerns that people will be “wracked with anxiety” after an expected rise in interest rates was confirmed.
“People will be wracked with anxiety by this news. The (Prime Minister) must admit his responsibility for the Tory mortgage penalty leaving so many worse off,” Ms Reeves said.
“We need a proper windfall tax on oil and gas giants now to ease the cost of living.”
Higher inflation could become ‘entrenched’, warns CBI economist
12:24 , Martha Mchardy
The Bank of England is “rightly concerned” that higher inflation could become “entrenched”, CBI deputy chief economist Anna Leach said.
“The MPC has again been driven to raise rates by stubbornly high inflation, ongoing strength in wage growth and better-than-expected activity. With inflation having been at or above 9% for a full year, the Bank are rightly concerned that higher inflation could become entrenched,” she said.
“The future path for interest rates is as yet uncertain. With ongoing bouts of banking sector turbulence in the US, risks to financial stability seem likely to persist as global interest rates continue to ratchet up and the full impact of past rises continues to feed through.
“While credit costs have so far adjusted smoothly, further material turbulence could yet disrupt activity, requiring a looser monetary stance. On the other hand, inflation could surprise to the upside, particularly if wage rises remain elevated, suggesting further rate rises.”
Pound remains resilient despite rise in interest rates
12:26 , Martha Mchardy
The pound was little changed by the quarter percentage point interest rate rise, which was widely expected by economists.
Sterling stood 0.2% lower at 1.26 US dollars and was 0.2% higher at 1.15 euros.
Lib Dems call on Chancellor to resign amid interest rates rise
12:37 , Martha Mchardy
The Liberal Democrats have called on chancellor Jeremy Hunt to resign if he fails to meet his inflation target and help lower food bills soon after another rise in interest rates was announced.
“This is a hammer blow to struggling families who simply can’t balance the books with these endless price rises,” said Sarah Olney MP.
“With mortgages and inflation remaining at sky-high levels, Jeremy Hunt is frankly failing at his job. He was set one main goal, which was to bring down prices, yet today confirms he is nowhere near achieving that.
“The deadly rise in food prices is to blame for this cost-of-living crisis yet the Chancellor refuses to act.
“If Jeremy Hunt doesn’t meet his self-imposed inflation target and bring down food bills soon then he must go. Families and pensioners just want an end to the cost-of-living crisis, yet Jeremy Hunt looks the like yet another Chancellor who isn’t up to the task.”
Economy could grow this year amid fall in energy prices, says Bank of England governor
12:49 , Martha Mchardy
Andrew Bailey, governor of the Bank of England, has said the fall in energy prices and stronger-than-expected economic activity means the economy might grow this year.
“The outlook for growth and unemployment has improved,” he said on Thursday.
“Six months ago, we were expecting a shallow but long recession. Since then, energy prices have fallen substantially and economic activity is holding up better than expected.
“Today we are forecasting modest, but positive, growth and a much smaller increase in unemployment.
“We think inflation will fall quite sharply over the coming months, beginning with the April number to be released in two weeks’ time.
“Energy prices have fallen from their peaks and that will now start to come through as lower inflation.
Economy still on track to halve inflation by end of year, says Bank of England governor
12:51 , Martha Mchardy
Bank of England governor Andrew Bailey said the economy is still on track to halve inflation by the end of the year, along with Government promises.
“Looking ahead to the end of the year, the contribution from energy will fall further,” he said after the Bank raised interest rates from 4.25% to 4.5%.
He added: “In the fourth quarter of this year, if energy prices evolve as financial market prices now suggest, we can expect the typical household energy bill to fall to around £2,100.
“That is still a high number. But it is about 16% lower than the level a year before that when the Government’s Energy Price Guarantee was put in place.
“Since energy makes up around 5% of the consumer price index, that fall in the prices of electricity and gas, along with other fuels, translates into a contribution to overall inflation from energy of minus one percentage point towards the end of the year.
“It is not least for this reason that consumer price inflation is on course to halve by the end of this year - though to be very clear, our target is a sustainable return of inflation to 2%. That is what we focus on.”
Interest rate rise ‘very disappointing for families with mortgages’, says chancellor
12:55 , Martha Mchardy
Chancellor Jeremy Hunt said: “Although it is good news that the Bank of England is no longer forecasting recession, today’s interest rate rise will obviously be very disappointing for families with mortgages.
“But unless we tackle rising prices, the cost-of-living crisis will only carry on - which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year.”
Still ‘uncertainties in outlook for the global economy’, Bank of England governor says
12:57 , Martha Mchardy
There are still uncertainties in the outlook for the global economy, Bank of England Governor Andrew Bailey has said.
“The pace at which inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank rate so far,” he said.
“Uncertainties around the global financial and economic outlook remain elevated.
“The MPC (Monetary Policy Committee) will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services price inflation.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”
Inflation ‘too high’ – but will come down soon, says Bank governor
13:00 , Martha Mchardy
Andrew Bailey, governor of the Bank of England, has said inflation “remains too high” and would fall more slowly than expected – but is still expected to fall “sharply” from April’s official figures.
The Bank said it expects inflation to reach just over 5.1 per cent by the final quarter of this year – which would mean Rishi Sunak would just manage to hit the pledge to bring inflation below 5.35 per cent.
The Bank had previously thought CPI inflation could fall as low as 1 per cent by the middle of 2024 but it is now predicted to reach around 3.4 per cent.
Food prices have stayed higher for longer than expected, the Bank also said, partly due to Russia’s war in Ukraine and poor harvests in some European countries, ramping up the cost of living for households across the UK.
Bank ‘should have held off raising interest rates’, claims think tank
13:03 , Martha Mchardy
The Bank of England should have held off raising interest rates again, the IPPR think tank has said, warning of a “continued increase in inequality”.
Carsten Jung, senior economist at IPPR, said: “The Bank of England should have held off raising rates. The current approach risks creating big economic costs, in the form of lower future growth and fewer jobs, while not actually being effective enough at bringing down inflation.
“There will be a continued increase in inequality as a result of this: many on low incomes, who are already the ones whose wages are least keeping up with inflation, are the ones hardest hit by lower growth caused by further rate increases. Meanwhile, many firms are comfortably keeping up their profit margins.
“Instead, we need a more balanced set of policies - including more fiscal policy action - to address the persistence of inflation. This should involve further price support measures to lower energy prices, excess profits taxes to disincentivise excessive price increases, and income support to help smooth out wage adjustments.”
Fall in energy prices a major ‘positive’, says governor
13:04 , Martha Mchardy
Bank of England governor Andrew Bailey said the economy is more “resilient” than expected, as economists at the Bank released a record upgrade to their growth forecasts in a big boost to hopes of avoiding a recession.
The Bank now expect that gross domestic product (GDP) will not fall during a single quarter this year. In February, the committee believed the economy could fall into a shallow recession starting from the first three months of the year.
Now it expects GDP to rise by 0.25 per cent this year before a 0.75 per cent increase next year and the year after. It had previously forecast a 0.5 per cent fall this year.
Mr Bailey has said a drop in energy prices explains part of the Bank’s upgrade to its outlook for the UK’s economy. “There has been a substantial fall in energy prices.
“The biggest news has been the very substantial fall in gas prices and that does feed through, clearly, and that’s fed through in a positive way,” he said.
Food prives have peaked, claims Bank of England deputy governor
13:16 , Martha Mchardy
Bank of England deputy governor Ben Broadbent said it appears food price inflation has peaked, despite being higher than expected in recent months.
“For food output, price inflation hasn’t come down as much but it does seem to have peaked. You see the same in other countries,” he said.
“If you look at the input prices for food producers, that rate of inflation has been falling for several months.”
£5,000 annual increase in cost of mortgage for some borrowers, expert claims
13:24 , Martha Mchardy
Homeowners whose mortgages directly track the base rate face a total average annual bill hike of around £5,000, following 12 consecutive hikes in the Bank of England base rate.
The average monthly tracker rate mortgage payment will increase by £23.71 following Thursday’s base rate hike, according to calculations from UK Finance.
Homeowners on a standard variable rate (SVR) mortgage meanwhile will pay around £15.14 more per month typically, assuming that the lender passes the full base rate rise on to the borrower.
Borrowers often end up on their lender’s SVR when their initial mortgage deal comes to an end and SVRs are set by individual lenders.
Over the course of the series of rate hikes, which have taken the base rate from 0.1% to 4.5%, the average monthly tracker mortgage payment has increased by £417.36, according to UK Finance’s calculations.
This adds up to around £5,008 more per year for homeowners on trackers.
The average SVR payment has jumped by a total of £266.48 per month, which adds up to around £3,198 more annually.
Around four-fifths (81%) of outstanding mortgages are fixed-rate deals. Mortgage borrowers in this group will not feel the immediate impact of base rate rises until their deal ends.
Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: “Those aiming to lock into a fixed-rate mortgage for peace of mind will find average rates have come down slightly over the past month, but as rates average around 5%, this may still be unaffordable for some.
“The average five-year fixed mortgage rate is lower than the two-year fixed, which may encourage prospective borrowers to lock down their rate for longer.
“However, fixed mortgage rates could be unpredictable in the months to come, so some borrowers may even sit on their revert rate waiting for cheaper deals to surface.
“Whether fixed rates are destined to remain volatile or not, there is still an incentive for borrowers to fix, as the consecutive base rate rises have pushed the average standard variable rate to its highest point since 2007.”
Governor hints at further interest rate rise
13:25 , Martha Mchardy
Bank of England governor Bailey hinted at the possibility of further interest rate hikes in inflation continues to prove so stubborn, saying that there are still uncertainties in the outlook for the global economy.
He said the Monetary Policy Committee will continue to “monitor closely indications of persistent inflationary pressures … If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”.
Food inflation has been “more persistent than we expected,” said Mr Bailey, though should ease soon. Deputy governor Ben Broadbent said it appears food price inflation has already peaked.
On energy bills, the Bank said the typical annual energy bill should fall to £2,100 in the final quarter of 2023.
13:40 , Katy Clifton
Bank of England Governor Andrew Bailey has said the Bank’s chief economist Huw Pill chose the wrong words when warning that people have to accept they are worse off because of inflation.
“We are very conscious that all inflation is difficult, and particularly for those least well off,” he said.
“This inflation is particularly difficult for those least well off because it is concentrated in what are called the essentials of life, food and energy, and people on lower incomes have a larger proportion of their consumption in the essentials of life.”
He added: “The economics of the hit to national income are clear.
“I want it to be very clear that we are very sensitive to the position of all people, but particularly people on lower incomes.
“I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
“What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.”
Will inflation decrease this year?
14:00 , Martha Mchardy
In February, the Bank of England said it expects inflation to fall sharply over the rest of the year from its current level of 10.1%.
However, the National Institute of Economic and Social Research (Niesr) forecast that inflation will remain persistently higher than expected over the rest of 2023, in a worrying prediction for under-pressure households.
In its latest set of projections, the forecaster said inflation is expected to drop from its current level to 5.4% by the end of 2023.
Inflation has rocketed over the past year on the back of spiking energy prices after the Russian invasion of Ukraine and more recent jumps in food costs.
Niesr said inflation will continue to cool but households will see a 0.7% drop in real disposable income over the year.
The predictions are significantly higher than those of the Government’s official forecaster, the Office for Budget Responsibility (OBR), which estimated in March that inflation would drop to 2.9% by the end of the year.
14:30 , Katy Clifton
Sir Howard Davies, chairman of the NatWest Group, said he was not surprised by the Bank of England’s interest rate decision.
He said it would have been “very strange if the Bank of England had not moved today”.
Sir Howard was asked about the Government’s target to halve inflation by the end of the year, saying that was a “political statement, that is not what the Bank of England is supposed to be doing”.
“What the Bank of England is supposed to be doing is getting it back down to 2%. Normally, the bank looks at that on a two-year horizon. And that’s going to be quite a challenge, I think.
“Indeed, they’re forecasting at the moment that they won’t be meeting that in a couple of years’ time and I think that’s the worrying thing. If a central bank has to forecast that it won’t be meeting its target with interest rates as they currently are, then really it’s incumbent on them to do something about that,” he told BBC Radio 4’s World at One programme.
Interest rate rises risk compounding cost-of-living crisis - ICAEW
14:50 , Martha Mchardy
The Bank of England risks “overdoing” rate rises, which could compound the cost-of-living crisis for many, Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), has said.
He said: “Another rate rise will come as a nasty blow to those people and companies already battling escalating borrowing costs and a multitude of other severe cost pressures.
“The Monetary Policy Committee needs to be more forward-looking in setting interest rates rather than being overly focused on current inflation given the long-time lag between rate rises and its impact on the broader economy.
“With most of the interest rate rises yet to pass through to households and businesses, the Bank of England risks overdoing the rate hikes, adding to squeeze on our growth prospects and aggravating the cost-of-living crisis.”
He added: “Given that the Bank of England is still expecting inflation to fall back, the case for rate-setters to pivot towards cutting interest rates is likely to strengthen.”
Chief economist ‘chose wrong words’ about impact of inflation - Bank of England governor
14:56 , Martha Mchardy
Bank of England governor Andrew Bailey has said the Bank’s chief economist Huw Pill chose the wrong words when warning that people have to accept they are worse off because of inflation.
“We are very conscious that all inflation is difficult, and particularly for those least well off,” he said.
“This inflation is particularly difficult for those least well off because it is concentrated in what are called the essentials of life, food and energy, and people on lower incomes have a larger proportion of their consumption in the essentials of life.”
He added: “The economics of the hit to national income are clear.
“I want it to be very clear that we are very sensitive to the position of all people, but particularly people on lower incomes.
“I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
“What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.”
Jeremy Hunt: Not ‘automatic’ Government will meet target of halving inflation this year
16:12 , Martha Mchardy
The Bank of England is predicting that the UK Government will meet its target of halving inflation this year, according to Jeremy Hunt.
However, the chanclelor warned that it is not “automatic” that the target will be reached.
The pledge is one of Prime Minister Rishi Sunak’s key aims before the next general election.
The Chancellor, who is currently in Japan meeting other G7 finance ministers, spoke to broadcasters about UK inflation and the decision for the Bank of England to increase interest rates on Thursday.
Asked whether he was confident of meeting Mr Sunak’s inflation target, Mr Hunt said: “The Bank of England is predicting that we will hit the inflation target.
“But there has never been anything automatic about hitting it.
“That is why it is so important, if we’re going to bring certainty back to family finance, stop prices rising, that we stick to our plan to halve it.”
Prime Minister ‘fully committed’ to halving inflation - Downing Street
16:34 , Martha Mchardy
The Prime Minister is “fully committed” to his five pledges, including to halve inflation by the end of the year, Downing Street has said.
Inflation is expected to decline to 5.1% in the fourth quarter of the year, meaning the Government would narrowly hit its target by the end of the year.
A spokesman for the Prime Minister said: “It remains the Prime Minister’s focus to reduce inflation, to halve it this year.
He said that No10 had always said that “it isn’t a given, it isn’t a certainty. It is important that we continue to ensure economic stability in order to ensure that inflation can drop this year.
“We are fully committed to hitting those five promises the Prime Minister set out in January.”
Millions face mortgage pain - the full story
18:21 , Sam Rkaina
Millions of Britons are facing painful increases in their mortgage costs after the Bank of England raised interest rates for the 12th time in a row to tackle “stubbornly high” inflation.
The Bank rejected accusations that it had gone too far and was “overcorrecting” for the inflation crisis after the Monetary Policy Committee (MPC) voted to hike the base interest rate from 4.25 per cent to 4.5 per cent.
The central bank warned inflation is set to decline less rapidly this year than hoped because food prices hikes have gone on longer than expected, partly due to the Ukraine war and poor harvests in Europe.
However, despite ongoing cost of living pressures and mortgage payment pain, the Bank offered a more optimistic forecast for the wider economy – predicting Britain would avoid recession in the year ahead.
Labour said Rishi Sunak should take the blame for “the Tory mortgage penalty”, saying Britons coming off fixed-rate mortgages will be “wracked with anxiety” about paying hundreds of pounds more a month.
Homeowners whose mortgages directly track the base rate face an average annual hike of around £5,000 as a result of the 12th hike in a row, according to UK Finance. The body warned that the average tracker payment had increased £420 a month since the base rate hikes began.
Click here for the full story.
18:44 , Sam Rkaina
We’re closing our live coverage of today’s interest rate hike but keep checking independent.co.uk for the latest updates.
