The Bank of England has once again raised interest rates this time to 1.25 per cent from 1 per cent, the highest since January 2009.
The increase is another attempt to tame rising inflation and poor economic growth.
The Bank’s monetary policy committee made the decision to increase the base rate of interest for the fifth time in a row today, its highest point in 13 years.
The increase marks the first time interest has been above 1 per cent since January 2009 and mirrors the actions taken by the Federal Reserve in the US who also raised interest by the highest margin since 1994.
In a statement released by the committee, it states “In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the committee voted to increase Bank rate by 0.25 percentage points,”
The Bank of England has also today said it expects the UK economy to shrink by 0.3 per cent in the second quarter.
In a note following the interest rate announcement the Bank said: “Bank staff now expect GDP to fall by 0.3 per cent in the second quarter as a whole, weaker than anticipated at the time of the May Report.
“Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth.”
The British Chambers of Commerce (BCC) cautioned over the impact of the rate rise on businesses.
David Bharier, head of research at the BCC, said: “While expected, the decision to raise the interest rate will add further concern to businesses amid a weakened economic outlook, soaring cost pressures, and labour shortages.
“The increase signals the Bank's intention to tackle inflation but businesses have been raising the alarm about spiralling prices since the start of 2021 and a higher interest rate is unlikely to address many of the global causes of this.
“The increase could impact smaller businesses who may be reliant on banking or overdraft facilities, for instance, those buying goods in bulk in an attempt to offset raw material shortages.”
