Interest rates – live: Bank of England prepare for biggest increase since 1995

<p>A bigger hike in interest rates is on the cards for August, according to experts </p>

A bigger hike in interest rates is on the cards for August, according to experts

(PA Wire)

The Bank of England is expected to increase interest rates by up to 0.5 per cent today in an attempt to rein in runaway inflation.

Millions of Britons’ finances could take another hit if the bank announces its biggest hike in interest rates since 1995.

Nine members of the Monetary Policy Committee will be voting on whether to increase the bank’s base rate by 0.25 per cent or 0.5 per cent. Either way, mortgage borrowing would be made more expensive.

It comes as economists fear a recession caused by “stagflation” – sluggish growth, high unemployment, and inflation.

The Resolution Foundation think tank has warned that next year inflation could reach an “astronomical” record-high of 15 per cent – the highest level since 1980.

This will see prices for essentials increase much faster than wages, while the UK faces a winter of yet more record highs in gas and electricity prices fuelled by Russia’s invasion of Ukraine.

Low to middle-income families are likely to face disproportionately higher living cost levels for the foreseeable future, the think tank said.

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The International Monetary Fund last week cut its outlook for global economic growth, citing higher-than-expected inflation, continuing Covid-19 outbreaks in China and further effects from the war in Ukraine. The UK economy is likely to expand just 0.5 per cent next year, the slowest growth rate among the world’s advanced economies, the IMF said.

The landscape is especially complicated for central banks because many of the factors driving inflation are beyond their control, particularly food and energy prices that have soared due to uncertainty surrounding Russia’s invasion.

But those external pressures are now becoming embedded in the UK economy, with public- and private-sector workers demanding wage increases to prevent inflation from eroding their living standards.

“This explains why at the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully,” Mr Bailey said in speech last month. “In simple terms, this means that a 50 basis point increase will be among the choices on the table when we next meet.”

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Raising interest rates ‘won’t solve cost of living crisis,’ expert warns

Raising interest rates will not solve the cost of living crisis, an economics commentator has warned.

Grace Blakeley told Good Morning Britain: “This inflation is not being driven primarily by demand it’s been driven cost pressures, supply chain pressures, by rising energy prices – it’s a similar sort of situation to what we saw in the 1970s when you had the two oil price hikes.

“That drives inflation across the whole economy because fuel petrochemicals go into everything, not just the transportation of good, not just the production of energy but they go into so many goods as well.

“Therefore raising interest rates is not going to help anything it’s going to make the situation worse.”

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When is the Bank of England’s announcement today?

The Bank of England (BoE) is expected to announce its biggest interest rate rise in almost 30 years on Thursday as the UK continues to grapple with soaring inflation.

The central bank’s Monetary Policy Committee (MPC) has already raised interest rates five times this year, overseeing an increase from 0.1 per cent in December 2021 to 1.25 per cent in June as it attempts to put the brakes on runaway inflation – currently at a 40-year high of 9.4 per cent.

It is now expected to hike them even further to 1.75 per cent, with a Reuters poll published earlier this week reporting that 70 per cent of the 65 economists surveyed expected that to happen today

The Bank of England will announce its decision in a press conference from 12pm on Thursday 4 August, with its governor Andrew Bailey speaking from 12.30pm.

Read the full story below:

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Will rising interest rates cause a property market crash?

Mortgage payments are on the rise after successive interest rate hikes from the Bank of England and further increases expected over the coming months.

The Bank is seeking to contain inflation which is on course to hit 15 per cent by early 2023 – the highest in four decades.

Ultra-low interest rates have made mortgage borrowing cheaper, inflating a housing bubble that has made homeownership a distant dream for many renters in some parts of the U

Figures show that prices rose 12.4 per cent over the year to April. That was a big jump on the 9.7 per cent increase recorded in March, and it means the average sold price rose by a staggering £31,000 – more than the median UK wage – to £281,00.

For now, it seems, buyers are willing to stomach the relatively modest rise in monthly mortgage payments, although the official data does not yet reflect the most recent increases to interest rates.

All four nations saw big gains in the cost of a home with average prices increasing in England to £299,000 (11.9 per cent), in Wales to £212,000 (16.2 per cent), in Scotland to £188,000 (16.2 per cent) and in Northern Ireland to £165,000 (10.4 per cent ).

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Liz Truss threatens to interfere with Bank of England mandate after policy disagreement

Liz Truss is to review the Bank of England’s mandate after supporters of her leadership campaign said it had been “too slow” to raise interest rates.

The Tory leadership frontrunner believes the bank, which has been independent of government since the 1990s, should have raised interest rates “a long time ago”.

But policy is currently set by an independent committee of economists, meaning the government currently has no direct say in whether they go up or down.

But speaking ahead of the announcement an ally of Ms Truss insisted on Thursday morning that the central bank would remain independent despite the would-be prime minister’s planned meddling.

Read the full story below:

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More than half a million homeowners in south east face ‘mortgage ticking time bomb’

More than half a million homeowners in London and the south east face a “mortgage ticking time bomb”, new analysis revealed.

With the City widely expecting a historic half a percentage point rise in interest rates by the Bank of England’s Monetary Policy Committee (MPC) on Thursday, 565,000 people in the capital and surrounding region face paying hundreds of pounds more each month as cheaper fixed-rate deals expire.

Successive increases to the Bank of England’s base rate since February mean that the typical mortgage holder on a tracker rate is already paying an additional £104 a month — or £1,248 a year —and they will see an immediate increase in payments from a further rise.

The repayment figures compiled by the Liberal Democrats were based on data from the trade body UK Finance and were calculated using a typical fixed average mortgage balance of more than £160,000 outstanding.

(PA Archive)

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Bank of England ‘very worried’ recession looming, experts say

Torsten Bell, chief executive of living standards at think tank the Resolution Foundation, said he would be surprised to see more 0.5 per cent increases in interest rates after today as the Bank of England is “very worried” that a recession is looming.

Speaking to BBC Radio 4’s Today programme about what the Bank of England can do in the circumstances, he said: “There’s obviously lots of different shocks happening at once here to our economy and to inflation.

“Some of those wider shocks are easing and that’s to do with global supply chains and due to the spikes in global commodity prices that I was just mentioning, but others are getting worse and that’s to do with the Russian war and what that’s done to energy prices.

“That isn’t going to go away and interest rate rises are only relevant to that insofar as they prevent that becoming embedded in our wage setting processes in the months and years ahead. They can’t do anything about that actual rise in energy prices.

Mr Bell added: “I think there is pressure from the global situation for people to put up interest rates by large amounts. We may see one rise of half a percentage point today.

“I’ll be surprised if we see several months of that because actually, if you look at what the Bank of England have been saying to us, they’re also very worried about the state of the economy – that there may be a recession looming. We may get a forecast of recession in the updated forecast from … the Bank of England later today.”

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Sunak and Truss clash over tax plans ahead of debate

Rishi Sunak launched a fresh attack on Liz Truss’s plans for tax cuts ahead of the pair’s next debate in their quest to become prime minister.

The former chancellor said his foreign secretary rival in the Tory leadership race would further drive up interest rates, raising mortgage payments, with her plans.

His warning came as the Bank of England was forecast to raise interest rates to the highest level in nearly three decades on Thursday, from 1.25 per cent to 1.75 per cent.

The former chancellor stressed there are “crucial differences” between their plans “because timing is everything”.

“If we rush through premature tax cuts before we have gripped inflation all we are doing is giving with one hand and then taking away with the other,” he said in a statement.

“That would stoke inflation and drive up interest rates, adding to people’s mortgage payments. And it would mean every pound people get back in their pockets is nothing more than a down payment on rising prices.”

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Situation ‘deeply worrying’ for many people, Ofgem chief says

Ofgem chief executive Jonathan Brearley said: “I know this situation is deeply worrying for many people. As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.

“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now. Today’s changes ensure the price cap does its job, making sure customers are only paying the real cost of their energy, but also, that it can adapt to the current volatile market.

“We will keep working closely with the government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”

A view of electricity pylons in Cheshire (Peter Byrne/PA)

(PA Archive)

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Bank of England ‘too slow’ to raise interest rates

Attorney General Suella Braverman said the Bank of England has been “too slow” to raise interest rates and claimed Liz Truss would review if the bank’s current arrangement is “fit for purpose” if she becomes prime minister next month.

“Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” Ms Braverman said.

She added: “Liz Truss has made clear that she wants to review the mandate that the Bank of England has, so that’s going to be looking in detail at exactly what the Bank of England does and see whether it’s actually fit for purpose in terms of its entire exclusionary independence over interest rates.”

Ms Braverman rejected criticism that Ms Truss’s tax-cutting plans would further drive up inflation.

“People say ‘we can’t afford to cut taxes’, Liz thinks – and I agree with her – that we can’t afford not to cut taxes,” she said.

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