UK interest rates have risen further as the Bank of England attempts to stem the pace of soaring prices.<\/p>\n
Rates have increased from 1% to 1.25%, the fifth consecutive rise, pushing them to the highest level in 13 years.<\/p>\n
It comes as finances are being squeezed by the rising cost of living, driven by record fuel and energy prices.<\/p>\n
Inflation \u2013 the rate at which prices rise \u2013 is currently at a 40-year high of 9%, and the Bank warned it could surpass 11% later this year.<\/p>\n
The Bank said rising energy prices were expected to drive living costs even higher in October, but added it would \u201cact forcefully\u201d if necessary should inflation pressures persist. Capital Economics speculates that the Bank could eventually have to raise interest rates to 3%.<\/p>\n
One way to try to control rising prices \u2013 or inflation \u2013 is to raise interest rates. This increases the cost of borrowing and encourages people to borrow and spend less. Higher interest rates also motivate people to save more.<\/p>\n
The June rate rise means that homeowners with a typical tracker mortgage will have to pay about \u00a325 more a month. Those on standard variable rate mortgages will see a \u00a316 increase.<\/p>\n
Compared with pre-December 2021 \u2013 when the Bank announced the first in this series of rate rises \u2013 tracker mortgage customers are paying around \u00a3115 more a month, and variable mortgage holders about \u00a373 more.<\/p>\n
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However, about three-quarters of mortgage-holders have a fixed-rate deal, so have not been affected immediately.<\/p>\n
Meanwhile, some businesses believe rising borrowing costs may curb customer spending.<\/p>\n
\u201cAt the moment we\u2019re not seeing it directly but we know we are a luxury,\u201d Julie Dalton, managing director of Gulliver\u2019s Theme Park Resorts told the BBC. \u201cPast experience has told us when interest rates go up we do start to suffer.\u201d<\/p>\n
Six of the nine members of the Bank\u2019s Monetary Policy Committee voted to raise rates to 1.25%, but three backed a bigger increase to 1.5%.<\/p>\n
Minutes from the Bank\u2019s meeting also reveal that it expects the UK economy will shrink by 0.3% in the April-to-June period.<\/p>\n
The Bank did not update its outlook for the July-to-September quarter, but it has said previously that expects the economy to grow during this period.<\/p>\n
If it does, then the UK would avoid a recession this year \u2013 with a recession defined as the economy shrinking for two consecutive quarters.<\/p>\n
However, the Bank has also said previously that it expects the economy to shrink in the final three months of this year, during which the price cap on household energy bills is expected to be increased from \u00a31,971 per year to about \u00a32,800.<\/p>\n
The rise in domestic gas and electricity bills will lift the increase in the cost of living to \u201cslightly above\u201d 11% in October, the Bank said.<\/p>\n
It means the rate of inflation will be more than five times the Bank\u2019s inflation target of 2%.<\/p>\n
In a letter to Chancellor Rishi Sunak, the Bank\u2019s governor, Andrew Bailey, said inflation was largely due to global issues such as rising prices for energy and agricultural goods, which have worsened as a result of Russia\u2019s war with Ukraine.<\/p>\n
But Mr Bailey said \u201cdomestic factors\u201d also had a role in rising inflation such as the tighter labour market \u2013 there are currently a record 1.3 million job vacancies \u2013 and rising prices in the services sector, which accounts for nearly three-quarters of the UK\u2019s GDP.<\/p>\n
He also noted that the UK\u2019s inflation rate was higher than both the eurozone and the US.<\/p>\n
Mr Bailey added that because it takes some time for wholesale gas and oil prices to be reflected in household bills \u2013 when the energy regulator Ofgem changes the price cap in April and October \u2013 \u201cinflation is likely to peak later in the UK than in many other economies and may therefore fall back later\u201d.<\/p>\n
Other countries are also raising interest rates in an attempt to cool rising prices.<\/p>\n
The US central bank has just announced its biggest interest rate rise in nearly 30 years, with the Federal Reserve increasing rates by three-quarters of a percentage point to a range of 1.5% to 1.75%.<\/p>\n
The Dow Jones Industrial Average stock index shed more than 600 points (2%) following the move while in the UK, the FTSE 100 fell by more than 200 points (3%) after the Bank lifted rates.<\/p>\n
Brazil, Canada, India, Australia and Switzerland have also raised rates, while the European Central Bank has outlined plans to do so later this summer.<\/p>\n
In the UK, some urged the Bank of England to show some restraint on raising interest rates.<\/p>\n
While the manufacturers\u2019 association Make UK acknowledged that the Bank is \u201ccaught between a rock and a hard place\u201d, it said: \u201cRelatively low-cost borrowing is currently one of the few last lines of defence for manufacturers, with cashflow under pressure thanks to a potent cocktail of high energy, transport and raw material costs.\u201d<\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"
UK interest rates have risen further as the Bank of England attempts to stem the pace of soaring prices. Rates have increased from 1% to 1.25%, the fifth consecutive rise, pushing them to the highest level in 13 years. It comes as finances are being squeezed by the rising cost of living, driven by record […]<\/p>\n","protected":false},"author":1,"featured_media":1124796,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[72],"tags":[557,8571,4233,4144,1591],"class_list":["post-1124794","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-bank","tag-england","tag-interest","tag-raised","tag-rates"],"_links":{"self":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1124794","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/comments?post=1124794"}],"version-history":[{"count":0,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/posts\/1124794\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/media?parent=1124794"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/categories?post=1124794"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.ghanamma.com\/2022\/wp-json\/wp\/v2\/tags?post=1124794"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}