'There is no short cut' Rishi Sunak backs jumbo interest rate hike to 5 per cent in desperate bid to control inflation

22 June 2023, 15:41

Rishi Sunak has backed the Bank of England's interest hike to curb inflation
Rishi Sunak has backed the Bank of England's interest hike to curb inflation. Picture: Alamy

By StephenRigley

Rishi Sunak backed the Bank of England's tough policy after interest rates were ramped up to 5% in a bid to curb inflation.

Amid mounting panic in Tory circles about soaring mortgage rates Mr Sunak told an event in Kent: "We are on it and we are going to get through it.

"Now that's not easy, as I said, and anyone tells you that it's easy or can happen overnight, they're not being straight with you.

"I want to be honest with you, these things are tough. They require difficult decisions, but that's what you should get from your Government. That's what you should get from your Prime Minister, and that's what I'm going to do."

Mr Sunak has batted away Tory demands for tax breaks or other support for homeowners from the government, and renewed his vow to CPI inflation by the end of the year.

He added: "Like many countries, the UK faces profound economic challenges. Putin's illegal invasion of Ukraine saw all our energy prices rocket. That's why we took difficult but fair decisions to stabilise the economy.

"I know things are difficult, but if we can hold our nerve I'm confident this plan will deliver."

Rishi Sunak after the interest rate hike
Rishi Sunak after the interest rate hike. Picture: Alamy

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

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Earlier the Bank of England heaped misery on millions of mortgage holders by raising 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. UK Finance said it will add around £47 to the average monthly mortgage repayment.

Under-fire Bank of England governor Andrew Bailey told Brits to stop demanding "unsustainable" pay rises as he defended the interest rate rise.

Mr Bailey said: "We've got to get and we will get inflation back to its target.

"To do that I have to be clear – and we expect inflation to come down this year – to do that we cannot continue to have the current level of wage increases.

"And we can't have companies seeking to rebuild profit margins which mean prices continue to go up at their current rates.

"But what I would say to people is we expect inflation to come down, and it is important then that price setting and wage setting reflects that.'Because the current levels, I'll be absolutely honest, are unsustainable."

Beleaguered Bank of England governor Andrew Bailey
Beleaguered Bank of England governor Andrew Bailey. Picture: Alamy

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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.

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."

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.