Interest rates raised to 14-year high

The Bank of England has raised interest rates for the 10th successive time to hit a 14-year high.

The Monetary Policy Committee voted 7-2 to increase rates by 0.5 percentage points to 4% as its first meeting of 2023. The two dissenting members wanted to keep the rate unchanged.

The bank lending rate was at a historic low of 0.1% for 21 months through the panic to December 2021. It was slowly increased to 1.25% by July, but since then has been raised more urgently in response to soaring inflation.

Chancellor Jeremy Hunt said: “Inflation is a stealth tax that is the biggest threat to living standards in a generation, so we support the Bank’s action today so we succeed in halving inflation this year.”

In a statement, the MPC said: “Global consumer price inflation remains high, although it is likely to have peaked across many advanced economies, including in the United Kingdom.

“Wholesale gas prices have fallen recently and global supply chain disruption appears to have eased amid a slowing in global demand.”

The Bank expects annual CPI inflation to fall “to around 4% towards the end of this year”, alongside a much shallower projected decline in output than it had forecast three months ago.

Analysts are currently forecasting interest rates will reach 4.5% in the coming months – lower than had been feared in the aftermath of the Truss-Kwarteng fiscal statement and the market chaos that followed, but still the highest level since October 2008.

Higher interest rates directly affect homeowners with variable rate mortgages or who are renewing fixed rate deals. Yesterday, data from the Nationwide showed house prices had fallen for a fifth consecutive month.

The MPC added: “There are considerable uncertainties around the outlook. The MPC 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 inflation.”