The Bank of England’s Monetary Policy Committee (MPC) which sets monetary policy to meet the 2% inflation target, announced on 3 November its decision to raise UK interest rates by 75 basis points to 3.00%. This is the biggest increase since 1989 and is the eight successive time that the MPC has increased interest rates. The UK government was forced into a 2% rise during the exchange rate mechanism crisis in 1992, though this was for less than 24 hours before it was scrapped. BBC analysis suggests that the Bank rate rising from 2.25% to 3% means that those on a typical tracker mortgage will pay about £73.50 more a month. Those on standard variable rate mortgages would face a £46 jump. This comes on top of increases following the previous recent rate rises. Compared with pre-December 2021, average tracker mortgage customers would be paying about £284 more a month, and variable mortgage holders about £179 more.

UK interest rates are also now at their highest since November 2008. The MPC voted by a majority of 7-2 to increase interest rates to 3.00% with one member preferring to increase rates by 0.50 percentage points and another voting for a 0.25 percentage point rise. The next announcement on interest rates will be on 15 December.

Responding to on today’s interest rate decision by the Bank of England’s Monetary Policy Committee, Suren Thiru, Economies Director, ICAEW, said: “This significant hike to interest rates, although below the historic average, will exacerbate the squeeze on households by making loan repayments less affordable for many people whose incomes are already decimated by the cost-of-living crisis. This eye-watering rise, when the UK is already sliding into recession, risks deepening the looming downturn and does little to address the global energy price shock and supply constraints driving this inflationary surge.

“Rapidly rising rates are likely to weaken the UK’s ability to lift productivity by leaving companies with little financial headroom to invest and undermine the confidence firms need to innovate and push ahead with new projects. While markets will be reassured that monetary and fiscal policies are moving in the same direction, the aggressive pace of tightening means a more damaging downturn as higher borrowing costs, rising taxes, spending cuts and high inflation drag on UK output.”

The Bank of England also released its quarterly Monetary Policy Report, which provides an update on the bank’s outlook for the UK economy. In its latest projections, the central bank says that the UK economy started to contract in the third quarter of 2022 and will continue to contract until the end of 2024, making it the longest downturn since reliable records began. Higher energy prices and materially tighter financial conditions are expected to weigh heavily on the outlook for the UK economy. 

The Bank of England’s latest forecasts don’t account for the Autumn Statement on 17 November, where higher taxes and lower spending are likely to add to the downward pressure on the UK economy.

For further information, read: 

• Minutes from the November MPC meeting
• Bank of England Monetary Policy Report: November 2022