The Bank of England has raised borrowing costs by 0.5% to a 13-year high of 1.75% – in the sixth interest rate rise in a row.
The Monetary Policy Committee raised borrowing costs by 50 basis points, for the first time since the Committee took control of interest rates in 1997.
Inflation is expected to climb over 10% in the coming months, as gas prices see UK energy bills tripling in the coming months.
Biggest challenge facing Britain
Conservative leadership hopeful and former Chancellor Rishi Sunak warned: “One of the most urgent challenges we face as a country is getting inflation under control as quickly as possible.
“The Bank has acted today and it is imperative that any future government grips inflation, not exacerbates it.
“Increasing borrowing will put upward pressure on interest rates, which will mean increased payments on people’s mortgages. It will also make high inflation and high prices last for longer, making everyone poorer.
“As prime minister I would prioritise gripping inflation, growing the economy and then cutting taxes.”
Will interest rates go up further?
In recent weeks, British companies pared back profits and earnings forecasts as consumers tightened their belts, with delivery unicorn Deliveroo (GB:ROO) cutting its revenue guidance.
As consumers shun big-ticket purchases, furniture retailer Made.com (GB:MADE) also slashed its earnings and sales forecasts for the coming months.
The National Institute of Economic and Social Research warned this week that the Bank of England would need to raise interest rates to 3% to bring down inflation.
The think tank said, “The Bank of England’s Monetary Policy Committee must continue to be cautious as it walks a fine line between tightening policy too quickly, worsening the recession, and too slowly, increasing the risk of high inflation becoming embedded in expectations.”