Interest rate increase 2022: how much have rates risen, what it means - Bank Of England decision explained
The Monetary Policy Committee met today to discuss interest rates amid rising levels of inflation
UK interest rates will rise to 2.25% following today’s meeting of the Monetary Policy Committee (MPC).
Following a 0.5 percentage point increase last time around, the Bank of England has pushed up rates at the same rate once again from 1.75%.
The announcement, pushed back after Queen Elizabeth II’s death, will impact people’s finances, not least those with mortgages, as the BoE looks to get a grip on inflation.
Here’s what you need to know.
What are interest rates?
The interest rate hike means it is at its highest level in 14 years in the UK - while some expeted the rise to be worse.
“Investors think the most likely outcome is that the MPC will increase the Bank rate by 75bp (0.75 percentage points) on Thursday,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
But economists predicted correctly with a smaller rise, to 2.25% - the same 0.5 percentage point change as the Bank’s last hike.
What does today’s interest rate announcement?
It is the seventh time in a row the BoE has increased interst rates as it looks to tackle a spiralling inflation rate.
Prior to the announcement, ING economist James Smith said that the Bank of England will have to consider recent falls in the price of the pound. Sterling hit a new 37-year low against the dollar on Friday.
“The Bank of England meeting is crucial,” he said.
“It will tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the Government’s decision to cap household/business energy prices will translate into monetary policy.”
“We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it.”
Will interest rates continue to rise?
Mr Smith said rates will likely rise again in November and December - hitting 3% by the end of the year.
The decision to hike interest rates is a bid to keep inflation under control. It is the best tool that the Bank of England has to steer inflation – currently at 9.9% – back to its 2% target.
But the decisions will also have major impacts on people’s finances, not least those with mortgages who will need to start paying more for their home loans.
The MPC was originally set to announce its decision on 15 September, but delayed this for a week due to the Queen’s death.