Interest rates rise by biggest single increase in 33 years
Bank of England have announced new interest rates
Last updated 3rd Nov 2022
The Bank of England has raised interest rates to 3%, marking the biggest single increase since 1989.
The 0.75% increase raises the rates from 2.25%
The bank also warned that the UK could be on course for its longest recession since reliable records began a century ago.
What does the interest rate rise mean for mortgages?
Homeowners on variable mortgages and those who need to renew their fixed rate mortgage are set to face the biggest single shock on their mortgage bills since the 1980s.
The Bank’s base rate rising to 3% is its highest for 14 years, and decision-makers warned that more hikes are likely.
The rates will help pile around £3,000 per year on to mortgage bills for those households that are set to renew their mortgages, the Bank said.
Longest recession for a century
The Bank warned the economy could fall into eight consecutive quarters of negative growth if current market expectations prove correct. It would be the longest period of uninterrupted decline that the nation has experienced for around a century.
However, it would be a milder recession than in previous times.
From its highest to lowest point, gross domestic product (GDP) is expected to drop 2.9%, a much smaller decrease than the 6.3% drop seen during the 2008 financial crisis.
The economy has faced similarly long recessions in the past, but then the quarterly drops have been broken up with an occasional positive quarter.
However the Bank cautioned that this forecast is based on interest rates reaching as high as 5.2%, which the Bank said it does not necessarily expect to happen.
Global rates rise
Rates have been rising across the world - The US Federal Reserve increased rates by another 0.75 percentage points on Wednesday, but signalled that while further increases were likely to rein in inflation, they may be smaller and it could slow the pace of future rises.
The Bank of Canada also recently increased its interest rate by 0.5 percentage points, below the 0.75 percentage point rise which had been widely predicted.
Cost of living crisis
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.