The Bank of England Announces Unexpected Interest Rate Hike in Response to High Inflation

Today, the central bank announced an unexpected increase in interest rates from 4.5% to 5%, marking the largest hike since 2007. The monetary policy committee voted in a majority of 7-2 in favour of the increase, with two members voting to maintain the bank rate at 4.5%.

The central bank has gradually raised interest rates since the start of 2022 when the base rate was just 1%. However, despite consecutive increases, the bank has been unable to bring inflation close to its target of 2%. Inflation has been on the rise, with the latest figures showing a rate of 3.1%, the highest it has been in almost a decade.

The decision to increase interest rates was made in response to high inflation, which is seen as a destabilising force that eats into pay cheques and slows growth. Chancellor Jeremy Hunt responded to the announcement, stating that "if you stick to your guns, you bring inflation down." He emphasised the importance of acting now to relieve pressure on families with mortgages, warning that the situation could worsen if action is not taken.

The unexpected increase in interest rates is likely to have an impact on the economy, particularly on homeowners with variable rate mortgages and businesses with loans. The rise in interest rates will lead to an increase in the cost of borrowing, which could have a knock-on effect on consumption and investment.

Overall, the central bank's decision to increase interest rates marks a significant shift in monetary policy, reflecting concerns around rising inflation. While the move is likely to be unpopular with some, it is hoped that it will help to stabilise the economy in the long term.