Bank of England enacts biggest rate rise since the 1980s

This decision by the central bank’s Monetary Policy Committee (MPC) means bank rates are now at three percent. This was voted by a majority of seven to two – one preferring an increase of 0.5% and another by 0.25%.

 
Responding to the announcement, charity StepChange’s director of external affairs Richard Lane said: “Rising rates are the price being paid for high inflation – and both create trouble for people experiencing problem debt.  

“The cost of living is hitting everyone, but is especially hard for households on lower and fixed incomes, while rising rates have a dramatic effect on those mortgage holders rolling off fixed rates who have had little time to plan for much higher costs.”  

Alongside the bank rate announcement, the Bank of England has published its Monetary Policy Report for November. According to this, GDP is expected to decline by around ¾% during the second half of 2022 – partly reflecting the squeeze on real incomes.  

The MPC expects GDP to continue to fall throughout 2023 and the first half of 2024, as high energy prices and materially tighter financial conditions weigh on spending.  

Looking at CPI inflation, this is projected to pick up from 10.1% in September to around 11% in the last quarter of 2022. This is lower than what was expected in August, reflecting the impact of the government’s energy price guarantee.  

According to the MPC, CPI inflation will start to fall back from early next year as previous increases in energy prices drop out of the annual comparison – while domestic inflationary pressures remain strong in the coming quarters and then subside. CPI inflation is then projected to fall sharply to way below the two percent target in two years’ time, and further below the target in three years’ time.  

The bank rate increase comes two weeks ahead of the government’s delayed Autumn statement, setting out the government’s fiscal agenda designed to boost the UK economy in a period of high inflation.  

Paul Heywood, chief data and analytics officer at Equifax UK, said the decision to delay appeared to have impacted the Bank of England.  

He said: “In the face of double-digit inflation, a looming recession, and the biggest interest rate rise for 33 years, today people are facing a nail-biting wait to find out what the chancellor has in store in the now delayed Autumn statement.  

“The prevailing wisdom is that the UK consumer will be facing rising taxes and are already looking to find the best savings rates as they reduce spending and brace for what will undoubtedly be a challenging winter. 

“The government’s decision to delay the Autumn Statement may have spared the Government from unhelpful Halloween headlines, but it looks to have also impacted the Bank of England, which has acted resolutely to increase interest rates to levels not seen since the turn of the century.  

“People now face tough borrowing decisions, particularly those on lower incomes whose disposable incomes have been eroded thanks to increased food and fuel prices this year. Middle earners will also continue to feel the pinch as mortgage rates rise, compounded by the expectation of falling house prices.”