You are using an older browser version. Please use a supported version for the best MSN experience.

Bank of England increases interest rates to 0.75% in third jump in a row as cost of living crisis deepens

The i 17/03/2022 Grace Gausden

Interest rates have been raised to 0.75 per cent by the Bank of England (BoE) in the third rate rise in a row.

The increase returns the cost of borrowing to where it was before the pandemic started two years ago, but is likely more jumps will follow.

Rates were increased from 0.1 to 0.25 per cent in December before being hiked to 0.5 per cent in January, marking the Bank’s first back-to-back increase since June 2004.

It comes as inflation sits at a 30-year-high of 5.5 per cent with the cost of living soaring thanks to rising food and energy prices.

The Bank of England has warned that inflation could spike as high as 7.25 per cent in April, high above its two per cent target, as the cost of living squeeze bites.

The inflation rate is the average increase in prices based on how much things cost today compared to around one year ago.

Annabelle Williams, personal finance specialist at Nutmeg, the digital wealth manager, said: “Higher interest rates are supposed to help cool inflation, but prices have risen due to reasons largely outside of the Bank of England’s and the Government’s control – the cost of petrol, food and other day-to-day items is rising because of global events.

“Although this is a small increase to interest rates which have been hovering close to record lows for many years now, many will be looking to see if the increase is passed on to consumers through higher savings rates.”

Whilst it’s hoped saving rates could be boosted, the announcement is set to see a hike to monthly repayments for homeowners on variable-rate mortgages, which are linked to the Bank of England’s base rate.

Tenants are also likely to see their rental bills rise as landlords pass on the added mortgage costs.

Steve Seal, CEO, Bluestone Mortgages, said: “While today’s decision to raise rates is hardly surprising given current inflationary pressures, it will no doubt be difficult news for borrowers, many of whom are already feeling the squeeze on their personal finances.

“While this rate rise will inevitably impact mortgage repayments, there are still steps existing and would-be borrowers can take, whether that be locking in a fixed-rate mortgage or remortgaging.

“For those who find themselves in a more challenging financial situation, it’s important to remember there are still lenders out there who can point them in the right direction and help them achieve their homeownership dream.”

Much of the current rise in inflation is being driven by soaring international energy prices, and the bank’s interest rate rise will have limited effect on the rising cost of gas and electricity for households.

Millions of households are facing record high energy bills as Ofgem’s price cap is being hiked by £693 to £1,971, thanks to rising wholesale costs.

It is likely this will rise even further, with some experts predicting it will top £3,000 in October, after Russia’s invasion of Ukraine.

Higher food and clothes cost, driven by supply chain issues, as well as higher import taxes and wages increasing due to Brexit, are also causing inflation to rise.

In response to the cost of the living crisis, the Chancellor Rishi Sunak has unveiled billions of pounds worth of Government-backed support measures to help Britons grappling with the soaring living costs.

All domestic customers will receive an upfront discount of £200 on their energy bills to be applied from October.

The discount will be repaid in installments of roughly £40 for the next five years.

The Government also unveiled a £150 council tax rebate for those on the lowest band and expanded eligibility for the warm homes discount by a third to around three million households.

However, experts have warned these measures do not go far enough to help with the current crisis.

AdChoices
AdChoices

More From The i

image beaconimage beaconimage beacon