Interest rates – live: Rates hit 15-year high as ‘mounting cash pressures’ push Wilko to brink of collapse

We are pausing our live coverage for the evening, but you can check out more on today’s interest rate hike here.

The UK’s “exceptionally high” rate of core inflation means the Bank of England may have to keep raising rates even as the EU and US begin to loosen their own monetary policy, an analyst has warned.

“The Bank of England opted for a 25bps rate hike to 5.25%, bringing their policy rate to its highest level since March 2008,” said Erik Norland, senior economist at CME Group.

“Over one quarter of economists polled by Bloomberg expected a 50bps hike, a view that was likely influenced by the UK’s exceptionally high rate of core inflation. UK core inflation remains at 6.9 per cent, compared to 5.5 per cent in the Eurozone and 4.8 per cent in the US.

“Unless UK core inflation eases in coming months, the Bank of England may have to continue raising rates in coming meetings even as its peers across the Channel and across the Atlantic perhaps slow or halt their pace of increases.”

Rachel Reeves has explained what Labour would do “differently from the government” in terms of economic policies.

The shadow chancellor was told on the BBC Radio 4’s World At One programme “a lot of people struggle to see much difference between your plans and the Conservatives”’

Ms Reeves said: “First of all, the government have got a voluntary scheme with banks and lenders to help people with mortgages who are in financial difficulty. That should not be a voluntary scheme. Banks and lenders should be forced to take part in that, otherwise hundreds of thousands of people getting into financial difficulty with their mortgages risk falling through the gaps.

“Second, obviously we are talking about mortgages and rents today, but the truth is that energy prices are still much higher than they were before Russia’s invasion of Ukraine, and the energy companies continue to make large profits.

“We would tax those properly by closing some of the loopholes in the government’s windfall tax on the energy giants and use that money to help people with their bills.

“Those are two practical things that we would do differently from the government right now. But the truth is we are in these problems today because of a decade or more of economic mismanagement, and we need to do more to get our economy back on the right path.”

Mortgage holders on tracker deals face nearly £24 per month being added to their payments, on average, following the latest Bank of England base rate rise, reports Vicky Shaw.

Based on the mortgages outstanding, the new 0.25 percentage point rise, which takes the base rate to 5.25 per cent, will add on £23.71 typically to monthly tracker payments, according to figures from trade association UK Finance, adding up to nearly £285 per year.

For homeowners on a standard variable rate (SVR) mortgage, the average payment could increase by £15.14 per month, or nearly £182 per year. SVRs are set by individual lenders and often follow movements in the base rate.

Taking all of the past 14 base rate rises since December 2021 into account, average monthly payments will have increased by £488.50 for tracker deals and, assuming base rate rises have been fully passed on, £311.90 for SVRs.

This adds up to an average annual increase of £5,862 for homeowners on tracker mortgages and £3,742.80 for SVR customers.

The governor of the Bank of England has emphasised that inflation hurts lower-income households the most, which is why the Bank has opted for “restrictive” monetary policy.

Andrew Bailey said: “We do recognise, and I think it’s very important to say, that inflation has a very serious effect particularly on those least well off.”

The main components of inflation, energy and food, make up a bigger portion of spending for lower income families, he said. “But I will emphasise that the economy is more resilient. Yes unemployment has gone up a bit, but it is still at historically low levels. We haven’t experienced a recession and we’re not forecasting one.”

He added that the Bank’s use of the word “restrictive” to describe the path for interest rates applies in that context.

Bank of England Governor Andrew Bailey said the British central bank might have to increase borrowing costs further after it took its benchmark interest rate to a 15-year high of 5.25 per cent on Thursday.

“We now need to make sure that inflation gets back to the 2 per cent target and stays there,” Mr Bailey said in a video clip published by the Bank. “Depending on what the evidence on the economy indicates, we might need to raise interest rates again but that’s not certain.”

Protesters demonstrated outside the Bank of England on Thursday, 3 August, as interest rates rose for the 14th time in a row, reports Holly Patrick.

Campaigners from Positive Money staged the action to demand the government introduce a windfall tax on bank profits.

The Bank warned of “crystallising” risks which were pushing inflation upwards as it announced an increase in its base rate to 5.25 per cent from 5 per cent.

Wilko has said it plans to appoint administrators, putting about 12,000 jobs at the high street retailer at risk.

The boss of the homeware and hardware chain said it is expected to enter insolvency after failing to secure a takeover to help the business with “mounting cash pressures”.

Earlier this year the company hired advisers from PwC in a bid to find to a buyer in order to secure fresh funding to keep the firm trading. Last year, the retailer agreed a deal to borrow £40m from restructuring specialist Hilco after posting significant losses.

It comes a week after official figures showed insolvencies in England and Wales surged to their highest level for 14 years in the second quarter of 2023 as firms were hit by tighter consumer budgets and rising borrowing costs.

The Governor of the Bank of England said there was evidence to suggest that savers benefited much quicker from the 0.5 percentage point increase in June than they had from past interest rate rises.

“The latest numbers we have in June suggest that the pass-through of our June interest rate rise of 50 basis points has been pretty full actually,” Andrew Bailey said.

“So that’s a change because it certainly was not full as has been well covered. That was not the case previously.”

The backdrop for the next election will be “falling GDP, higher unemployment and big increases in mortgage repayments,” the Resolution Foundation has said, after the Bank of England hiked interest rates for the 14th time.

The think-tank said the Bank’s gloomy outlook was “particularly bad news for Rishi Sunak”.

Research director James Smith said: “The Bank’s decision to raise interest rates for a fourteenth meeting in a row – continuing the largest tightening cycle in more than 30 years – was expected. But this will provide little comfort for mortgagors facing an increase of around £3,000 in repayments next year.

“While there is good news from the Bank of England that the real-pay squeeze will end sooner than expected, the price for taming inflationary pressures from Britain’s tight labour market is an increase in unemployment of around 350,000.”