Bank of England raises UK Interest Rates

Interest rates have increased to 1.25%, their highest level in 13 years and a fifth consecutive rise. This follows the sharpest interest rake since 1994 of 0.75 imposed by the US central bank last night.


It comes as UK inflation reaches a 40-year high of 9%, with warnings that rising energy prices are expected to drive living costs even higher by October with speculation that the Bank of England could raise rates to as high as 3% with the Bank forecasting that inflation would top 11% in autumn, over five times the inflation target of 2%.




SOURCE: Bank of England

Raising interest rates controls the rising prices by increasing the cost to borrowing and encouraging people to save money, thus reducing demand in the economy.


The Bank has said previously that they expect the economy to shrink in the final three months of the year, although they have not updated the outlook for July-to-September which it previously stated as expected the economy to grow. Assuming this plays out as the Bank expects, the UK would avoid a recession this year.





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