Interest rates - live: Bank of England predicts ‘shallow’ recession but warns ‘it’s not over yet’

Lucinda O’Brien, personal finance expert at Money.co.uk, has given her insight into what 2023’s interest rates mean for savers:

“Interest rates have soared on fixed-rate bonds over the past 12 months, making them far more rewarding for people with a lump sum to save.

“For the past few years, savings accounts haven’t had the headline interest rates that we have hoped for - until things started changing during a turbulent 2022.

“Amidst the cost of living crisis, inflation at a 40-year high and a September mini Budget that caused chaos, providers started to battle with each other by trying to produce the best rates to win customers. This meant we could finally start to see some return if we put our money into a savings account; especially with fixed-rate bonds.

“In January 2022 the average interest rate for a one-year fixed rate bond was 0.71%, but by the beginning of December 2022 it had risen to 3.61%.This month, the average interest rate for a one-year fixed rate bond stands at 3.59% - a slight decrease from December - but still a 406% increase from last year.

“In comparison, a five-year fixed rate bond had an average interest rate of 1.62% in January 2022 and 11 months later it had risen to 4.36%. These averages look at all fixed-rate bond accounts that include a minimum deposit of £500 or £1,000 and are open to any savers.”

Britain’s economy will have the worst performance of all G7 economies even sinking below Russia.

In its latest update published earlier this week, the International Monetary Fund (IMF) downgraded its UK forecast once again, predicting a contraction of 0.6 per cent against the 0.3 per cent growth pencilled in last October.

The grim outlook for the year ahead puts the UK far behind counterparts in the G7 and the only country – across advanced and emerging economies – expected to suffer a year of declining GDP.

My colleagues Adam Forrest and Thomas Kingsley report:

The UK is not alone in raising interest rates in a bid to tame sky-high inflation.

Policymakers across the pond have also been hiking rates and the Federal Reserve yesterday announced a further quarter point rise.

The Fed’s latest hike brings that Federal funds rate to a range of 4.50 per cent to 4.75 per cent.

Cora Lewis takes a look at what the Fed hike means for Americans.

The profits of energy companies have been coming under close scrutiny of late as they continue to make huge profits due to increased demand coming out of the Covid pandemic and Vladimir Putin’s illegal war in Ukraine, which drove up the price of oil and gas.

The government introduced a windfall tax on oil and gas giants to help people pay their energy bills, although some companies have got away with paying little or nothing due what the Labour Party described as a “loophole” in the legislation.

In October last year, the BBC reported that Shell had paid zero in the windfall tax. The firm said it only expected to start paying the levy this year.

Today, Shell has posted the biggest profits in its history. Profits increased by 53 per cent to 84.3 billion dollars (£68.1 billion) in 2022.

Shell chief executive Wael Sawan said: “Our results in Q4 and across the full year demonstrate the strength of Shell’s differentiated portfolio, as well as our capacity to deliver vital energy to our customers in a volatile world.

“We believe that Shell is well positioned to be the trusted partner through the energy transition.

“As we continue to put our Powering Progress strategy into action, we will build on our core strengths, further simplify the organisation and focus on performance.

“We intend to remain disciplined while delivering compelling shareholder returns, as demonstrated by the 15 per cent dividend increase and the four-billion-dollar share buyback programme announced today.”

My colleague Sam Rkaina has the story:

The FTSE 100 closed down again on Wednesday as it continued a recent retreat from its four-year highs in mid-January.

The index fell by 10.59 points, ending the day at 7,761.11, a drop of a little over 0.1% which was influenced by pharma giant AstraZeneca and some of the biggest mining companies in the world.

The falls came as traders look towards interest rates decisions from the US Federal Reserve, and the Bank of England, which reports at midday on Thursday.

More below:

Yesterday Nationwide, one of the country’s biggest mortgage lenders, said that average UK house prices had slumped for the fifth month in a row in January, down to 0.6 per cent.

The UK’s housing market has been cooling in recent months following record growth during the Covid pandemic.

Prices have been falling due to a combination of inflation, the general cost of living squeeze and rising interest rates.

When the Bank first started raising rates last autumn in the aftermath of Liz Truss’s mini-Budget, mortgage lenders began hiking their prices, making it more expensive to buy a house, which dampened down demand in the market.

And although mortgage rates are starting to come down they remain well above where they were last year. Few lenders are offering deals below 4 per cent - many had previously been offering customers in the region of 2 per cent.

Meanwhile, some mortgage holders whose deals are linked to the Bank’s base have also seen their costs increase - in some cases - by hundreds of pounds.

Analysts believe that the Bank’s policymakers could be split on their decision on interest rates today.

The Monetary Policy Committee (MPC) has nine members - the Bank governor, the three deputy governors for monetary policy, financial stability and markets and banking, the chief economist and four external members appointed directly by the chancellor.

Committee members vote on whether they think the base rate should rise - and by how much. But they do not always agree.

Experts say some members of MPC could opt for a smaller hike to 3.75 per cent, or no increase at all.

A decision is made based on a majority of votes.

But the tide could be set to turn imminently, with some economists suggesting the decision will mark the penultimate base rate rise.

Interest rates could peak at 4.5 per cent or 4.25 per cent next month, before coming back down.

UK markets slipped into the red on Tuesday after a stark report from the International Monetary Fund (IMF) warned that Britain will be the only major economy to plunge into recession this year.

The grim forecast from the group predicted that the UK will lag behind its counterparts in the G7 group of advanced nations, with even sanction-hit Russia expected to grow this year.

London’s leading indices all suffered losses on Tuesday with the gloomy outlook hitting investor sentiment.

The present spike means that the price of everyday items like staple foods, fuel, clothing, shoes and furniture have all climbed over the last year, a development that threatens to hit low-income families hardest at a time when they can least afford it.

Joe Sommerlad has more:

Britain’s consumer economy is still awaiting the “latent spending power” built up during the pandemic, writes James Moore.