Prices to rise sharply as Bank of England increases interest rates
Rates were increased in December after staying at 0.1% during Covid
Last updated 27th May 2022
Households are being urged to prepare for a tight spring as prices affected by interest rates are to rise significantly in upcoming months.
Interest rates - which affect the amount of money being borrowed or saved - were brought down to 0.1% in March 2020, as the country was hit by the economic fallout triggered by the coronavirus pandemic.
As the UK recovered from the Covid and the cost of living crisis emerged, pressure continued to grow to step in as more and more people struggled to make ends meet.
But prices are still set to go up again this year, as the interest rate will rise from 0.25% in December to 0.5% in the coming months, the Bank of England announced.
It comes as the price cap for energy rose to its highest ever level, with an typical user needing to pay an extra £693 a year for gas.
As a result, households are being warned to tighten the purse strings as costs and taxes to counter the rising rate of inflation rise.
Inflation - which determines the cost of living for goods and services - has already risen well above the Bank of England's desired target, currently sitting at 5.4%. This is in part due to the rise in international demand for energy, fuel and food.
Projecting total economic growth in the coming months, the Bank of England predicted that inflation will peak at 7% by late spring, before falling back.
However, the bank estimated it would not reach its target rate of inflation of 2% for about two years, meaning prices will continue to be higher for longer.