Interest rates latest: Bank of England raises interest rates to 3% in biggest hike for three decades

Good morning and welcome to the NationalWorld live blog covering the expected interest rate rise by the Bank of England.

It’s a bleak day in the City, with rain pouring down, and the weather will perhaps match the mood of mortgage holders and renters across the country.

The Bank of England will announce the new base rate at 12noon, which is expecte to rise by 0.75 percentage points, from 2.25% to 3%.

There will then be a press conference at Threadneedle Street from around 12.30pm. If you’d like to get in touch with NationalWorld, email [email protected]

As the public body in charge of the UK’s currency, the Bank of England plays an important role in influencing inflation, my colleague Henry Sandercock writes.

Inflation is the value of the pounds in our pockets - as well as how much it costs to borrow money.

Borrowing money is key to business growth and is also vital to the UK economy because it allows the housing market to function. Very few people can afford to purchase a property outright, with most relying on mortgages to pay for their new home.

All loans have a rate of interest attached. Most of this interest is intended to preserve the value of the money the lender has paid out.

The Bank of England base interest rate plays a major role in influencing the level at which inflation levels are set on the market.

When the interest rate is low, the cost of borrowing is cheap and therefore, money is more likely to move around the economy. This increases the rate of inflation as demand for goods and services is likely to increase above supply.

If the interest rate is high, it is more expensive to borrow money and more attractive to save. This measure is likely to decrease the amount of economic activity, which in turn lowers the rate of inflation.

The Bank of England has a target to keep inflation at a rate of 2%. Economists believe this level of inflation encourages consumers to spend without making the cost of living unaffordable.

Given inflation currently sits at double digits, the UK’s central bank is trying to take the heat out of the UK economy by increasing its interest rate.

Read Henry’s full piece here.

Analysts at Deutsche Bank have said they expect the Bank of England to opt for a 0.75 percentage point rise with a split vote, my colleague Claire Schofield writes.

Experts at the firm said they expect latest forecasts from the Bank of England, which will also be revealed on Thursday, to show that “the economic outlook has deteriorated further”.

They added: “Conditioned on market pricing, the UK economy will likely fall into a deeper and more prolonged recession.”

The Bank is also set to release its long-term inflation forecasts, which are expected to show that the cost of living will be much higher than its 2% target next year.

Official figures released in September showed inflation hit 10.1% - matching a 40-year high seen in July - with much of this increase being driven by rising food costs.

James Smith, developed markets analyst at ING, also had a downbeat prediction for Bank’s latest economic outlook, adding: “The new set of forecasts due, which crucially are based on market interest rate expectations, are likely to be dismal – showing both a deep recession and inflation falling below target in the medium term.

“That should be read as a not-so-subtle hint that market pricing is inconsistent with achieving its inflation goal.”

The Bank of England is expected to unveil the biggest interest rate rise since the 1980s today in a bid to control the runaway inflation amid the cost of living crisis..

The nine members of the Monetary Policy Committee will make a decision that could push up the amount that millions of mortgage holders have to pay their banks every month.

The decision is expected to push up the Bank’s base interest rate from 2.25% currently to 3%, the highest since 2008. Mortgages are decided against this rate.

If – as expected – the Bank raises interest rates by 0.75 percentage points, it would be the biggest single increase since 1989.

Chancellor Jeremy Hunt is facing calls to come to the Commons or give a press conference to explain how mortgage-holders will be helped following the expected hike in interest rates today.

Liberal Democrat Treasury spokeswoman Sarah Olney said: “The Chancellor must address the country immediately after the rate rise decision to spell out a plan to save homeowners on the brink.

“He should either come to Parliament or hold a press conference to announce support for families facing mortgage bill rises worth hundreds of pounds a month.

“Hard-working families are being left to pay the price for weeks of Conservative chaos. People are desperately worried about how they are going to pay these frightening mortgage payments after tomorrow.

“The government cannot hide away, especially after their long list of economic failures.”

The average house price will be more than £22,000 higher than it is now in five years’ time, despite property values being expected to fall by 10% in 2023, according to a forecast.

The predictions, made by Savills, assume that house prices will start to recover from 2024 as interest rates and affordability pressures ease, after the expected fall next year.

First-time buyers and buy-to-let investors will bear the brunt of increased affordability issues next year, adding to pressures on rental prices, according to Savills’ predictions.

It also expects there will be a growing divide in terms of the ability to make property transactions between cash buyers or those with large amounts of equity in their home and those relying on mortgages to make a purchase. This means that the “prime” – or top end – of the property market is predicted to hold up relatively strongly.

Cash buyers are often found in the prime property market – and so they are more cushioned against concerns about the ability to borrow at a time when mortgage rates are rising. However, they may still be influenced by weaker housing market sentiment generally.

The prime housing market broadly refers to the top 5% to 10% of homes by value for the geographic region they are located in.

Downing Street has said that forecasts can “fluctuate and change”, after the Bank of England indicated that it believes the economy is already in recession.

A spokeswoman for No 10 said: “The UK is not alone in facing slow growth, with Putin’s illegal invasion of Ukraine and weaponisation of energy presenting a global challenge for economies across the world.

“It’s not unusual for forecasts to fluctuate and change as further interventions are made. And that is why we are supporting households and businesses with high energy bills.

“This government has an unashamedly pro-growth agenda and the Chancellor will be setting out more in his growth plan tomorrow.”

The Bank of England has raised interest rates to 3% from 2.25%, marking the biggest single increase since 1989.

The Bank warned the UK could be on course for its longest recession since reliable records began a century ago.

The Bank of England has said further interest rate hikes could be required to tame runaway inflation, as it implemented the biggest single increase since 1989.

All but two members of the Monetary Policy Committee (MPC) voted to push up interest rates by 0.75 percentage points, from 2.25% to 3%, during a crunch meeting on Thursday.

One member of the nine-person MPC voted for a 0.5 percentage point increase, while another wanted a much softer 0.25 percentage point rise.

While further hikes could be necessary to pull inflation back to its 2% target, the peak rate will be lower than what financial markets currently expect, the Bank said.

The UK could be facing the longest period of recession since reliable records began, the Bank of England has warned.

The economy could fall into eight consecutive quarters of negative growth if current market expectations prove correct.

It would be the longest period of uninterrupted decline that the nation has experienced for around a century, but it would be a milder recession than in previous times.

From its highest to lowest point, gross domestic product (GDP) is expected to drop 2.9%, a much smaller decrease than the 6.3% drop seen during the 2008 financial crisis.

The Bank also predicted inflation would peak at around 11% at the end of this year, while the unemployment rate could hit 6.4% by the end of 2025.