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Bank of England announce interest rate rise to 3%.
The Bank of England has announced the largest increase to interest rates since 1989. The cost of borrowing has reached 3%, a total rise of 0.75 percentage points. This comes after predictions that higher interest rates would push the country into the longest recession since the 1930s.
Today, the central bank’s Monetary Policy Committee (MPC) voted for the increase. This is in an attempt to combat rampant inflation, which hit 10.1% in September. This was voted by a 7-2 majority.
But why has this happened yet again? Well, the MPC has cited high energy prices and a tight labour market as reasons for this hike in rates. These rises now match those made last week by the US Federal Reserve as well as the European Central Bank.
Inflation is also expected to continue to rise, with a peak of 11% expected by the end of this year. Then, says the Bank of England, it will fall “quite sharply” from the middle of 2023. However, we are likely to continue to feel the affects of both high inflation and large interest rates well into 2025.
These changes do not take into account Chancellor Jeremy Hunt’s forthcoming budget, which will be announced November 17th. This budget is expected to consist of cuts to government spending, which could worsen the outlook for the growth of the economy.
Inflation has soared this year in many developed countries, with the war in Ukraine reducing gas supplies. This has increased prices at a staggering rate. The severity and length of the recession the UK economy now faces will likely hit businesses hard.
What are your thoughts on the announcement of another interest rate rise?
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