Bank Of England increase interest rates to the highest level in nearly three decades
Bank Of England have announced interest rates have increased from 1.25% to 1.75%
Interest rates at the Bank Of England have increased to the highest level in nearly three decades, today (4th August), after experts warned that inflation could peak at 15%.
Interest rates have increased from 1.25% to 1.75% in an attempt to bring inflation back under control.
Previous Bank predictions indicate that Consumer Prices Index inflation would peak at around 11% this autumn, before falling back.
But on Wednesday the Resolution Foundation think tank warned of further misery to come. While the prices of some global commodities, such as oil, have come off their peaks, the gas price is obliterating household budgets.
"It is now plausible inflation could rise to 15% in the first quarter of 2023," the foundation said.
Gas prices are expected to be around 50% higher this winter than they were following the full-scale Russian attack on Ukraine.
The fall in some prices have not yet been transferred onto customers
"The outlook for inflation is highly uncertain, largely driven by unpredictable gas prices, but changes over recent months suggest that the Bank of England is likely to forecast a higher and later peak for inflation - potentially up to 15% in early 2023," said Jack Leslie, senior economist at the Resolution Foundation.
"While market prices for some core goods - including oil, corn and wheat - have fallen since their peak earlier this year, these prices haven't yet fed through into consumer costs and remain considerably higher than they were in January."
According to the latest forecasts from consultancy Cornwall Insight, the energy price cap will remain higher than £3,300 from October to at least the start of 2024.
New analysis from the National Institute of Economic and Social Research (NIESR) this week said that the UK is sliding into a recession so economists have been keen to know the Bank's take.
More on cost of living:
Interest rates and inflation go up
Inflation rose by 8.8% in the 12 months to January 2023, down from 9.2% in December 2022. With interest rates also rising to 4%, those saving money will earn more interest on their finances, whilst those paying mortgages would pay more interest to the bank.
Energy bills
The price of energy went up incredibly as the cost of living crisis hit, with the gas price spike caused largely by the war in Ukraine. The price cap - which is set by an independent regulator to help offset costs onto customers - was set to rise to £3,549 for an average home in October but a price freeze from the government restricted the typical bill to £2,500. That's still an increase of 27% from the previous energy cap and as it's a cap on unit cost, the more energy you use the higher your bill will be.
Food prices
The cost of a weekly shop also has gone up as a result of the cost of living crisis. As a result of the war in Ukraine, a number of products including cooking oils and wheat have been disrupted. This means that several products are now considerably more expensive, driving bills up for customers.
Prices at the pumps
The average cost of petrol has also rose to unprecedented levels. Supply lines for petrol have been thrown into doubt as a result of the war in Ukraine, as Russia is a large export partner for gas, oil and fuel. In April 2022, the average price for a litre of petrol on the forecourt was 160.2p, whilst a litre of diesel would cost 170.5p. By late June 2022 the price had risen to an average of 190.9p for a litre of unleaded and 198.9p for a litre of diesel. In March 2023 the price wass on average of 147.03 in petrol and 167.04 in diesel.
Average cost of filling up a car with petrol hits £100
On 9th June 2022, the average cost of filling up a car with petrol hit £100 for the first time ever. Diesel had already hit that milestone. It comes as the cost of fuel hit a record high of one pound eighty a litre. The 2p rise was the biggest daily jump in 17 years. Prices have dropped by at least 20p per litre since the high point.