Interest rates raised for sixth time in a row in battle to curb inflation
A widely expected rise in interest rates has gone ahead this afternoon, with the Bank of England confirming it has decided to hike the rates from 1.25% to 1.75%.
This is the highest level since December 2008, with The Bank of England also now warning that the UK will plunge into recession this year.
It predicts the economy will shrink in the final three months of this year as gas prices continue to rise following Russia’s invasion of Ukraine. The bank says a typical energy bill will rise to £3,500 in October, three times what it forecast a year ago.
It said this would drive inflation, the rate at which prices grow, to 13%.
Eight of the nine members of the Bank of England’s Monetary Policy Committee voted in favour of the rise to 1.75% – the biggest jump in 27 years.
The central bank hopes to slow the rate at which prices are increasing and has already warned that inflation could pass 11% later this year. The Bank of England’s target inflation rate is 2%.
Reacting to the latest rate rise, Ed Rimmer, chief executive officer at Time Finance, said it was another blow to business confidence and places even more financial strain on the economic recovery.
He added: “There are arguable benefits to this move from the Bank of England as it has faced mounting pressure to keep up with the pace of global central banks, but it is short sighted.
“We know an interest rate rise alone cannot curb inflation; the challenges around soaring costs need to end somewhere because for UK businesses this simply isn’t sustainable.
“The IMF recently adjusted its predictions for UK growth in 2023 to just 0.5% compared with the predicted 1.2% earlier this year.
“So, the big question here is what will happen to these figures if Government intervention doesn’t happen soon? Well, for many businesses it will slow down growth, making the impending recession a self-fulfilling prophecy. Instead, we need action that stimulates economic growth.”
Federation of Small Businesses (FSB) national chair, Martin McTague, said: “Moving interest rates is not without consequences: it’s removing steam from the economy at a time of meagre growth. Small businesses already face grave uncertainty as they try to recover from the impact of Covid, while contending with the cost of doing business crisis.
“First, many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase today.
“In a situation where inflation is already putting many small firms in extremely difficult conditions, there is now further concern that these businesses will face higher costs in paying back their loans.
“Second, attempts to get back to a functioning commercial lending market will be hampered as new products will become more expensive – and so small firms will find it harder to access affordable credit.
“The British Business Bank’s Recovery Loan Scheme is coming back later this month, and this could not happen soon enough. If the economy slows in autumn, it will be even more important for the scheme to be operational and in place, so it can be flexed up.
“Hard-working individual business owners are also already fighting an uphill battle with supply chain disruption, increasing utility bills and surging fuel prices. Action must therefore be taken on other challenges that small businesses face.”
“Now, just as the UK is nose-diving into a recession they are slamming on the brakes, which can be expected to make the downturn of Britain’s consumer-driven economy worse, and last for longer.
“The Bank of England’s hike is harmful to the economy and piles on the pain for people and businesses across the country.”