Government Says Record-Breaking Interest Rate Hike Will Tackle “Enemy” Of Inflation
Chancellor Jeremy Hunt has said “inflation is the enemy” as he responded to the Bank of England’s record-breaking increase in the base interest rate.
The Bank has hiked the base rate by 0.75 percentage points from 2.25 per cent to 3 per cent.
This is the largest single increase in rates since 1989 – excluding the interest rate rise on Black Wednesday in 1992 which was ultimately reversed.
The move is aimed at tackling soaring inflation, which hit a 40-year high of 10.1 per cent in September, way above the Bank’s target of 2 per cent.
Higher base interest rates will mean higher costs for borrowing, including mortgage repayments and credit card debt.
Responding to the announcement, Hunt said: “Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country.
“That is why this government’s number one priority is to grip inflation, and today the Bank has taken action in line with their objective to return inflation to target.
“Interest rates are rising across the world as countries manage rising prices largely driven by the Covid-19 pandemic and Putin’s invasion of Ukraine.”
He added that the government’s priority was to “restore stability” to the economy while also improving public finances and reducing government debt.
“Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there,” he added.
The Bank's governor Andrew Bailey said today's forecast showed that "there is a tough road ahead" for the UK economy.
"If we do not act forcefully now it will be worse later on," he said.
He also warned that bank rates may have to increase further in coming months, but said that the Bank expected that "inflation will begin to fall back from the middle of next year, probably quite sharply".
Bailey went on to illustrate that, although global pressures such as the war in Ukraine were affecting other countries, there was a "UK-specific" component to Britain's current economic situation.
He explained that "significant moves in UK yields and in UK financial conditions, more broadly, have occurred in parallel with significant developments in fiscal policy" such as Liz Truss's controversial mini-Budget.
Analysis by the Bank also predicted the UK was set to fall into its longest recession since records began, during which unemployment is expected to nearly double.
It claims the UK entered a "challenging" downturn over the summer which will continue into the first half of 2024.
Interest rates have been rising since December last year, and were most recently increased by half a percentage point to 2.25 per cent on 22 September.
It is the eighth time in a row that interest rates have been hiked, having been at 0.1 per cent less than a year ago. The decision has pushed interest to its highest amount since 2008.
Labour’s shadow chancellor Rachel Reeves said the announcement “lays bare how 12 years of Tory government has weakened the foundations of our economy” and warned the government had left the UK “exposed to shocks”.
“As Chancellor and now Prime Minister, Sunak must face up to his mistakes that have led to the vicious cycle of stagnation this Tory government has trapped us in.
“Working people are paying the price for Tory failure. Britain deserves more than this.
She added: “Labour will provide the economic responsibility we need, and bring forward a proper plan for growth across our country, investing in jobs in renewables, nuclear power and in insulating homes; fixing business rates; and driving forward a modern Industrial Strategy."
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