Interest rates rise as Bank of England says recession looming
The Bank of England has agreed the largest interest rates rise in almost 30 years as it warns the UK will fall into recession by the end of the year.
In a vote this morning, bank leaders agreed to raise rates from 1.25 percent to 1.75 percent.
The move marks the largest single rise since 1995 and puts interest rates at their highest level since late 2008.
Inflation is now forecast to hit 13 percent - a 40-year high - and the Bank expects the UK economy to enter recession in the last quarter of the year.
Further contraction will continue until the end of 2023, it is predicted, making for the longest downturn since the financial crisis of 2008.
Typical annual energy bills are expected to reach £3,500 in October, fuelling the rate of inflation.
This is already at 9.4 per cent, more than three times above the Bank's two percent target.
A rise in interest rates is one way to try to limit the inflation rate and eight of the Bank's nine-member Monetary Policy Committee voted in favour of the move.
Andrew Bailey, the governor of the Bank, warned of "exceptionally large" risks, saying: "The source of these risks and the driver of most of the revisions to our forecast since the May report is overwhelmingly energy prices and the consequences of the actions of Russia."
The Bank said: "The latest rise in gas prices has led to another significant deterioration in the outlook for the UK and the rest of Europe."
The news comes as the Conservative Party leadership race, which will establish who becomes the next prime minister, continues.
Meanwhile, Labour shadow chancellor Rachel Reeves said the Tories have "lost control of the economy". She said: "As families and pensioners worry about how they're going to pay their bills, the Tory leadership candidates are touring the country announcing unworkable policies that will do nothing to help people get through this crisis."
Rebecca McDonald, chief economist at the Joseph Rowntree Foundation, said that "staggeringly high inflation is going to hit low-income families hard": "While the government might have taken a break from acting on the cost-of-living emergency, these families can't take a holiday from the year of financial fear. They will be wondering why further urgent solutions needed to shore up family finances ahead of the winter are not yet being put in place.
"The next prime minister should immediately revisit the government's cost-of-living support to make sure it's up to the task. They must also increase basic Universal Credit entitlements to ensure that our social security system always, at a minimum, enables people to afford the essentials."
Chancellor Nadhim Zahawi said: "We are taking important steps to get inflation under control through strong, independent monetary policy, responsible tax and spending decisions, and reforms to boost our productivity and growth."