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| Interest rates: Bank boss warns interest rate rise hard for many | |
| (32 minutes later) | |
| Interest rates have risen by more than expected in a shock move as the Bank of England battles to slow soaring prices. | |
| The Bank increased rates to 5% from 4.5%, the highest level in 15 years. Most had expected a smaller rate rise. | |
| "if we don't raise rates now, it could be worse later," Bank of England boss Andrew Bailey warned. | |
| The move will lead to higher repayments for people with loans and many mortgage holders, but it should benefit savers if the rise is passed on. | |
| Mr Bailey said he knew the rise would be "hard". | |
| "Many people with mortgages or loans will be understandably worried about what this means for them... but inflation is still too high and we've got to deal with it," he added. | |
| The dramatic move comes after official figures on Wednesday showed that inflation, the annual rate at which prices go up, remained much higher than expected. | |
| Chancellor Jeremy Hunt backed the Bank saying it was the only "long-term way to relieve pressure on families with mortgages. If we don't act now, it will be worse later," | |
| In theory raising interest rates makes it more expensive to borrow money, meaning people have less to spend. This makes it harder for firms to raise prices. | |
| However, the process also drags on the UK economy, which is struggling to grow. It is also forcing mortgage lenders - who are affected by the Bank's base rate - to put up their own rates. | |
| The average two-year fixed residential mortgage now stands at 6.19% while the five-year rate is 5.82%. In June last year, those rates were closer to 3%. | |
| Millions of first time buyers and those about to re-mortgage are feeling the pinch and there have been calls for the government to step in, | |
| Mr Hunt and Prime Minister Rishi Sunak have so far dismissed suggestions that ministers could intervene. | |
| However, Mr Hunt is set to meet with lenders on Friday as pleas grow for more to be done and met with consumer champion Martin Lewis, who has warned "a mortgage ticking time bomb is now exploding". | |
| The Bank's Monetary Policy Committee (MPC), which sets UK rates, voted 7-2 in favour of a half percentage point rise - its biggest hike since February. | |
| Two members of the committee voted to keep rates on hold. | Two members of the committee voted to keep rates on hold. |
| In a letter to Mr Hunt Mr Bailey said that overall inflation was still set fall "significantly" during the course of the year as energy prices come down. | |
| But he added that the Bank would continue to monitor inflation closely, and would further tighten monetary policy if there "were evidence of more persistent pressures" | |
| How the interest rate rise affects you | |
| Interest rates remain the Bank's primary tool to lower inflation, despite debate over their effectiveness. | |
| The Bank said it was "continuing to monitor closely the impact" of the significant increase in the Bank rate so far. | |
| It added that given the number of people yet to come off fixed-rate mortgage deals, the full impact of recent rate rises would "not be felt for some time". | |
| The Bank is tasked with keeping inflation at 2% but the current inflation rate is over four times higher than this. In response, the Bank has been steadily raising interest rates since the end of 2021. | |
| Related Topics | Related Topics |
| Personal finance | Personal finance |
| UK economy | UK economy |
| Bank of England | Bank of England |