Interest rates rise again to counter higher priceson March 17, 2022 at 12:34 pm

- Advertisement -
- Advertisement -
- Advertisement -
- Advertisement -

Bank of England increases rates for the third time in four months as the cost of living rises.

A woman opening her purse and looking at money

Image source, Getty Images

Interest rates have increased for the third time in four months as the Bank of England tries to calm the rise in the cost of living.

The rise to 0.75% from 0.5% means rates are now at their highest level since March 2020, when the pandemic began.

Energy bills and food costs are increasing and there is concern the war in Ukraine will push prices up further.

The Bank expects inflation, the rate at which prices rise, to reach 8% and possibly higher, in coming months.

Prices rose by 5.5% in the year to January, the fastest rate for 30 years and well above the Bank’s 2% inflation target.

The Bank’s policymakers cited rising prices and strong employment as the reasons for the latest rise.

The members of the Monetary Policy Committee (MPC) felt that “given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist,” an interest rate rise was justified.

The MPC voted by a majority of 8-1 for the measure, with deputy Bank governor Jon Cunliffe the only member to vote for keeping rates unchanged. He said this was because of the impact of rapid price rises on household incomes.

The committee said that more interest rate rises “might be appropriate in coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved.”

The invasion of Ukraine was likely to push prices up even faster than the Bank expected at its last meeting in February, it said.

“The economy had recently been subject to a succession of very large shocks. Russia’s invasion of Ukraine was another such shock,” it wrote.

Mortgage costs

About two million households will see an immediate increase in their mortgage payments as a result of the rise in rates, according to UK Finance.

The increase will add about £26 a month to the cost of a typical tracker mortgage, and £16 to the cost of a typical standard variable rate mortgage.

The Bank said that higher global prices for energy and other goods were responsible for the faster rise in inflation than the MPC predicted at its last rate-setting meeting.

However, it expects inflation to “fall back materially” once prices stop rising and the impact of inflation on household incomes starts to bite.

- Advertisement -

Discover

Sponsor

Latest

All GPs to receive direct access to cancer testson November 16, 2022 at 12:43 am

NHS bosses hope more cancer cases will be spotted early, improving survival rates.Image source, Getty ImagesBy Nick TriggleHealth correspondentAll GP practices in England will...

First-time buyer challenges minister over 10.4% mortgage offeron September 29, 2022 at 11:58 pm

A first-time buyer tells BBC One's Question Time four mortgage offers were withdrawn after market turmoil.A first-time buyer tells BBC One's Question Time four...

Matthew Selby admits killing sister at Towyn caravan parkon February 7, 2022 at 10:44 am

"Loving daughter and granddaughter" Amanda Selby, 15, was killed by her brother in July.Image source, Family photoA 19-year-old has admitted killing his teenage sister...

Huge gas blast kills two and injures hundreds in Kenyaon February 2, 2024 at 5:37 am

A witness speaks of people screaming and running after a huge blast in the Kenyan capital.Image source, ReutersBy Thomas MackintoshBBC NewsAt least 29 people...

‘I’ve been called murderer’ – How Hillsborough tragedy chanting impacts fanson April 15, 2023 at 5:07 am

Hillsborough survivors describe the impact of hateful chants and call for an end to tragedy chanting.Hillsborough survivors describe the impact of hateful chants and...