'Jumbo hike' as interest rate goes to 5% in 13th rise in a row as Bank tries to slow inflation

22 June 2023, 12:02 | Updated: 22 June 2023, 12:20

Chancellor Jeremy Hunt said the Government had a “watertight” resolve to bring inflation down
Chancellor Jeremy Hunt said the Government had a “watertight” resolve to bring inflation down. Picture: Alamy

By Asher McShane

The Bank of England has raised interest rates for a record 13th time in a row - pushing the cost of borrowing up with a 'jumbo hike' to 5%.

The base interest rate is now at its highest level in 15 years. The Bank said higher inflation, especially services inflation, meant it had to act faster to bring prices under control.

The move that will inflict further pain on hundreds of thousands of mortgage payers. According to UK Finance, it will add around £47 to the average monthly mortgage repayment.

Chancellor Jeremy Hunt said the Government had a “watertight” resolve to bring inflation down and “if we don’t act now, it will be worse later”

Inflation didn’t change in May, remaining at 8.7% despite supermarkets boasting of price cuts for certain products.

The rise in interest rate aims to control inflation by making borrowing more expensive. It causes mortgage payments to go up and there will be some increases to saving rates. It causes people to have less money to spend, buying fewer things, reducing demand and therefore slowing price rises.

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Chancellor Jeremy Hunt jogs in Westminster ahead of the interest rate announcement
Chancellor Jeremy Hunt jogs in Westminster ahead of the interest rate announcement. Picture: Alamy

The Bank of England still thinks that inflation will "fall significantly" in months ahead because of energy prices, and a fall in prices in the food supply chain.

Sir Keir Starmer warned that "next month it's going to feel a lot worse" for millions of homeowners.

The Labour leader said that he will personally be affected by the expected interest rate rise.

"Within an hour now just across the river, the Bank of England will take a decision that will underline with emphasis the reality of where we stand as a nation, and also the fact that we now live in a new economic era," Sir Keir told the Times CEO summit in London.

Asked whether the expected rate hike will affect his household, he said: "Yes, it will affect our mortgage, it has already affected our mortgage in the last 12 months. So we will see that go up."

He said that will be a "shared experience" and that it is "a real problem" for those struggling to make ends meet.

"Next month is going to feel a lot worse than it feels now, and as many people have said to me, if you've got only the mortgage going up, that might be bearable, but it's alongside the energy bills going up, the food bill going up."

Rishi Sunak, due to speak after the rates announcement on Thursday at an economy-focused PM Connect event in the south-east of England, will tell business figures that halving inflation is his administration's "number one priority" and that he wants to "get back" to the target of inflation being at 2%, less than a quarter of what it stood at last month.

In pre-briefed comments, Mr Sunak is expected to say: "I feel a deep moral responsibility to make sure the money you earn holds its value.

"That's why our number one priority is to halve inflation this year and get back to the target of 2%."

Consumer champion Martin Lewis on Tuesday said that a mortgage ticking time bomb is now "exploding" and that his previous warnings failed to be heeded.

It comes as the average two-year fixed residential mortgage rate surpassed 6%, according to data from Moneyfactscompare.co.uk.

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