Interest rate raised to 1% by Bank of England hitting 13-year high

It will further raise mortgage costs for millions of people on tracker and standard variable rates but ease slightly the pain felt by savers during the low-rate era.

It comes despite fears that higher borrowing costs will help stoke an economic slowdown.

Policymakers had been widely tipped by financial markets to raise Bank rate to 1% – a 13-year high – from 0.75%, given that inflation – an increase in the price of goods and services – is expected to rise sharply due to the impact of higher energy bills.
The latest rate-setting meeting was held against a backdrop of jitters over the pace of UK economic growth, with governor Andrew Bailey admitting that he and his colleagues were walking a “very tight line” over supporting growth versus tackling higher prices through rate hikes.

The Bank has been focused since December last year on tackling higher inflation expectations, such as discouraging higher wage demands to meet the pace of price growth.
The Bank worries that soaring wage growth will fuel inflation further down the track.

It admits that it has no control over many inflationary factors such as energy prices.
The roots of the global inflation problem stem from the reopening of economies following COVID disruption last year.

It is simply explained by demand outstripping supply.

But inflationary pressure has surged since February as a result of Russia’s war with Ukraine, exacerbating the lift in things such as energy prices while metal and basic food commodities have also shot up.