Interest rates rise as inflation soars

Interest rates have been increased for the second time in seven weeks in response to soaring inflation.

The Bank of England’s Monetary Policy Committee (MPC), which sets interest rates, voted to increase the rate by 25 basis points to 0.5%. Four of the nine members of the committee had wanted a greater increase, to 0.75%.

Chancellor Rishi Sunak has also announced a council tax rebate and a discount on electricity bills, which would need to be repaid in the future, as the Government faces mounting challenges caused by the rising cost of living.

Consumer price inflation reached a 30-year high in December of 5.4%, well above the Bank’s 2% target.

Rising energy prices are a major concern and the Bank is now forecasting inflation could heat up further, peaking around 7.25% in April.

The MPC said: “Beyond the near term, UK GDP growth is expected to slow to subdued rates. The main reason for that is the adverse impact of higher global energy and tradable goods prices on UK real aggregate income and spending.

“As a result, the unemployment rate is expected to rise to 5% and excess supply builds to around 1% by the end of the forecast period.”

Chancellor Rishi Sunak has announced plans this morning to mitigate high domestic energy bills through a £200 household discount from October, which consumers would repay over the next five years.