Chancellor Jeremy Hunt Admits Interest Rates Rise Won't Be "Easy" For Households
Chancellor Jeremy Hunt has said the Government will continue to stick with its plan as the Bank of England raised interest rates to 5.25 per cent in an effort to tackle inflation.
The Bank of England raised interest rates by 0.25 points, the fourteenth successive rate hike. Interest rates are at their highest level since February 2008.
The UK central bank's monetary committee – which sets the Bank rate – voted by a majority of 8-1 to increase interest rates. The Bank hopes tightening monetary policy – how much it costs to borrow – will bring inflation down further and reduce price rises.
Last month UK inflation fell to 7.9 per cent, down from 8.7 per cent in May. Core inflation – the change in the price of goods and services – fell by 0.2 per cent from 7.1 to 6.9 per cent.
Hunt claimed economic forecasts show inflation more than halving again in 12 months time if the Government "stick" to its "plan". However, he said the interest rate hikes will not be "easy" for households.
“If we stick to the plan, the Bank forecasts inflation will be below 3% in a year's time without the economy falling into a recession," Hunt said.
“But that doesn't mean it's easy for families facing higher mortgage bills so we will continue to do what we can to help households."
Prime Minister Rishi Sunak has made halving inflation one of his main missions. The Bank predicts Sunak could meet his target on the basis of its own forecasts.
Inflation stood at 10.1 per cent in January 2023 and is expected to drop to just below 4.9 per cent before the turn of the year.
Labour’s Shadow Chancellor Rachel Reeves said the rise in interest rates was "incredibly worrying for households" as it will lead to higher bills.
“This latest rise in interest rates will be incredibly worrying for households across Britain already struggling to make ends meet," Reeves said.
“The Tory mortgage bombshell is hitting families hard, with a typical mortgage holder now paying an extra £220 a month when they go to re-mortgage.
“Responsibility for this crisis lies at the door of the Conservatives that crashed the economy and left working people worse off, with higher mortgages, higher food bills and higher taxes. After thirteen years of economic failure and managed decline under the Conservatives."
Liberal Democrat Treasury Spokesperson Sarah Olney MP also criticised Sunak for being "out of touch" and called for more support for struggling mortgage holders.
“Homeowners are once again being forced to the brink after a savage rate rise, all because of the government’s chaotic management of the economy," Olney said.
“As mortgage holders stare down the barrel of hundreds of pounds being added to their monthly bills, the best Ministers can do is to ask people to ‘hold their nerve’.
“Rishi Sunak and his Government are catastrophically out of touch, they must take concrete action now. Anything less would be a complete abdication of responsibility.”
There has been concern that excess savings stored in the economy since the pandemic could have fuelled inflation even further.
A number of economic experts are concerned that instead many will use savings built up during the pandemic to plug the shortfall rather than cut their day-to-day costs.
The Institute for Economic Affairs's Shadow Monetary Policy Committee voted (8-1) to keep the Bank Rate at 5 per cent. One member voted for an increase to 5.5 per cent. The free market think tank said the recent interest hikes should be given time to take effect but hiking them further.
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