In a crushing blow to mortgage holders and other borrowers, bank interest rates have been raised to 4.5% in 12th successive rise in a row.
At the last rise, the Bank of England’s governor, Andrew Bailey said he would only move to increase rates again “if there were evidence” of more inflationary pressures.
And with a hint of optimism, said private wage growth was beginning to “even off”, which was “obviously a good sign in terms of inflationary pressure”.
But it appears the Bank is concerned about inflation rising further than the 13.5% at which it stood in March.
Retail Price Index inflation has been fluctuating at an extremely high level for many months, well beyond the Bank of England’s 2% target, but there had been hopes it was falling.
The Bank’s aim by increasing rates is to make borrowing money more expensive and encourage people to spend less in the hope of curbing inflation.
But it means many homeowners could face much more expensive mortgage repayment bills, and could also influence the amount charged on credit cards and loans.
With 1.3m fixed mortgages due to end this year – the Bank estimates only about a third of the impact has been felt by home owners.
And Food prices have stayed higher for longer than expected, the Bank said, partly due to Russia’s war in Ukraine and poor harvests in some European countries, ramping up the cost of living for households across the UK.
It means Consumer Prices Index (CPI) inflation is expected to decline less rapidly than the Bank predicted in its last report in February.
Chancellor Jeremy Hunt responded to the Bank of England’s “disappointing” decision.
He said: “Although it is good news that the Bank of England is no longer forecasting recession, today’s interest rate rise will obviously be very disappointing for families with mortgages.”
“But unless we tackle rising prices, the cost of living crisis will only carry on – which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year.”
ITV News’ Consumer Editor Chris Choi said the 12th consecutive increase marks the longest run of rate rises in MPC history.
The Bank, which has made the biggest upward revision for growth in its history, expects the Prime Minister to meet his pledge of halving inflation by the end of the year.
“The worrying news for many mortgage customers is that most of the mortgage impact of rate rises on consumers still has not been felt – with 1.3 million fixed mortgages due to end this year – the Bank estimates only about a third of the impact has been felt,” Choi added.
Inflation is still expected to drop sharply from April this year, as energy prices decline and household bills are subsidised, the MPC said.
“There remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target,” it added.
The Bank of England now expects the prime minister to meet his pledge of halving inflation from 10.7% by the end of the year.
The Monetary Policy Committee said a banking crisis in the US would reduce US GDP by around 0.25 percentage points, but will have a much smaller impact in Europe.
It added: “The committee judges that growth over much of the forecast period will be materially stronger than in the February report.
“This reflects stronger global growth, lower energy prices, the fiscal support in the spring Budget and the possibility of lower precautionary saving by households than previously thought.”
Chancellor Jeremy Hunt said: “Although it is good news that the Bank of England is no longer forecasting recession, today’s interest rate rise will obviously be very disappointing for families with mortgages. But unless we tackle rising prices, the cost of living crisis will only carry on – which is why we need to be resolute in sticking to our plan to halve inflation by the end of the year.”
Top picture: Bank customers in Alexandria who have faced cuts in services while being faced with higher interest rates asking Dumbarton constituency Labour MSP Jackie Baillie to assist with problems such as ATM closures.