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

The Bank of England’s interest rate hikes are “having an impact”, governor Andrew Bailey has insisted.

“While pay growth has come in stronger than expected, other data news has been more mixed in terms of its implications for the persistence of inflationary pressures and thus the outlook for inflation over the medium term,” the Bank’s governor said.

“That is why the MPC has voted to increase Bank Rate by 0.25 percentage points today. Given the significant increase in Bank Rate since the start of this tightening cycle, the stance of monetary policy is restrictive. The evidence is now clear that it is having an impact.

“To return inflation to target, policy needs to continue to be restrictive. Today we have taken a decision consistent with that, which will help to return inflation to target.”

The Bank of England is “tightening the screws too much and causing excessive harm”, with interests potentially already more than a percentage point too high, the centre-left IPPR think-tank has warned.

“The UK economy is weakening. The labour market is slowing down, and productivity is falling. Increasingly there is a realisation that the Bank of England is already overdoing it,” said senior economist Carsten Jung.

“By raising interest rates to 5.25 per cent, the Bank is tightening the screws too much and causing excessive harm for households and businesses. Interest rates might well be more than a percentage point too high now.

“Instead of further rate rises, we need a more balanced approach to tackling inflation, using more government support.

“Countries like Spain have kept energy prices lower, temporarily limited rent increases and tackled excessively high profits through taxation. Their inflation rate has recently fallen back to target. The UK should take inspiration from their example.”

The governor of the Bank of England has said that he expects inflation on the price of goods will ease in the rest of this year.

“Core goods price inflation continues to be broad-based,” Andrew Bailey said on Thursday. “It is taking time for the fall in energy prices to work through the supply chain, and the prices of imported goods have continued to rise despite a fall in world export prices.

“That is why, in our central projection, we expect core goods price inflation to come down only gradually.

“But let me be clear, we do expect goods price inflation to ease over the rest of the year, and there are indicators that suggest it could happen faster than in our projection.”

The Bank of England’s latest hike will be “excruciating” for under-pressure businesses and mortgage-holders, the Institute of Chartered Accountants in England and Wales has warned.

Suren Thiru, the body’s economics director, said: “This latest rate hike will be particularly excruciating for those people struggling with mounting mortgage bills and firms dealing with a multitude of cost pressures.

“The Bank of England remains too fixated on backward looking data when setting interest rates, which risks wider economic damage given the large time lag between rate rises and their full impact on households and businesses.

“Given that most of the 14 interest rate rises are yet to filter through into the real economy, the Bank risks over-tightening, needlessly adding to the risk of recession. With the Bank of England expecting inflation to fall quickly, the case for further interest rate hikes is diminishing fast.”

The New Economics Foundation think-tank said the Bank of England should have “held its horses” before pushing up interest rates again.

“When the Bank raises interest rates, it takes time for those effects to filter through the economy,” said senior economist Lukasz Krebel.

He warned that households with mortgages are “already struggling” after 13 interest rate increases and today’s rise “could damage the economy by discouraging investment”.

The pound and British government bond yields dropped slightly after the Bank of England raised interest rates by 25 basis points.

Market expectations prior to the meeting were almost evenly split between a 25 and 50 basis point increase.

The pound traded as much as 0.66 per cent down on the day, hitting a fresh one month low, after the decision. It then pared losses to be at $1.2658, 0.4 per cent lower, largely where it was before the decision.

British government bond yields dipped. The benchmark 10 year gilt yield, which had been higher ahead of the decision, was flat at 4.4 per cent, and the rate-sensitive two year yield was down 8 basis points at 4.91 per cent.

The FTSE250 index of British midcap stocks was last up 0.3 per cent and the FTSE 100 pared loses and was down 0.6 per cent.

Jeremy Hunt said Britain could avoid a recession and see inflation dip below 3 per cent in a year’s time “if we stick to the plan”.

But the chancellor acknowledged it would not be easy for households struggling with higher mortgage payments.

Reacting to the Bank of England’s decision, he said: “If we stick to the plan, the Bank forecasts inflation will be below 3 per cent in a year's time without the economy falling into a recession.

“But that doesn't mean it's easy for families facing higher mortgage bills so we will continue to do what we can to help households.'”

Labour said the increase would be “incredibly worrying for households across Britain already struggling to make ends meet”.

Shadow chancellor Rachel Reeves said the Conservatives were responsible for “crashing the economy”, leaving households with higher mortgages, higher food bills and higher taxes.

She said: “The Tory mortgage bombshell is hitting families hard, with a typical mortgage holder now paying an extra £220 a month when they go to re-mortgage.”

Six members of the Bank of England’s nine-strong Monetary Policy Committee (MPC) opted to increase the base rate by 0.25 percentage points.

But two others, Jonathan Haskel and Catherine Mann, voted for a bigger half-point increase, while just one member, Swati Dhingra, preferred to keep the rate at 5 per cent.

The MPC said that some of the risks from more persistent inflation, notably wage growth, had “begun to crystallise”, prompting it to push borrowing costs higher.

The policymakers also indicated that interest rates would need to stay higher for longer in order to bring inflation back down to its 2 per cent target.