Interest rates

Interest rates are expected to rise to levels not seen since 2008, when the Bank of England made an announcement at 12pm | Economic news

The Bank of England is expected to unveil the biggest interest rate hike in decades today.

A hike of 0.75 percentage points is expected, the largest since 1992 – bringing the base rate to 3%, a level not seen since 2008.

If confirmed, it could drive up the mortgage bills of millions of people in the months to come.

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It would also be the eighth consecutive time the Bank of England has raised interest rates. Less than a year ago, the base rate was just 0.1%.

Earlier this month, markets predicted today’s increase could be a full percentage point – but sentiment has cooled since the mini-budget was canceled and Liz Truss resigned as Prime Minister.

The Bank of England is also expected to release a long-term inflation forecast, which should show that the cost of living next year will be well above its 2% target.

Official figures released in September showed inflation hit 10.1% – matching a 40-year high seen in July – with much of that increase due to rising food prices.

Through these rate hikes, the Bank of England is trying to control underlying inflation, which excludes more volatile elements such as oil and energy prices.

Deutsche Bank analysts have warned that they expect BoE forecasts to show “the economic outlook has deteriorated further”, adding: “Based on market prices, the UK economy will likely fall into a deeper and more prolonged recession.”

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Businesses face ‘desperately difficult decisions’, Labor warns

This afternoon, Labour’s Shadow Chancellor will warn that the latest interest rate hike will have a huge impact on consumers and businesses.

Speaking at the Anthropy conference in Cornwall, Rachel Reeves will say: “Rising interest rates will mean that families with already stretched budgets will be hit by higher mortgage payments. This will mean higher financing costs for businesses.

“For many businesses that have had a tough few years, this will mean desperately difficult decisions about whether to continue.

“And that will have profound implications for growth as demand is sucked out of the economy – and even companies that keep their heads above water face tough decisions about whether to invest or develop.”

Yesterday, a new poll by Ipsos for Sky News found that more than a quarter of people have started using their credit cards to buy food – and a fifth have borrowed money to cope with the price increase this year.

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The United States is also raising interest rates

The Bank of England’s decision will come a day after the US central bank, the Federal Reserve, also confirmed that it will raise interest rates by 0.75 percentage points.

Wall Street fell sharply when Fed Chairman Jerome Powell suggested that the US base rate may need to rise even more than previously thought to combat the worst inflation in decades.

He warned: “It is very premature, in my opinion, to think or talk about pausing our rate hikes. We have a long way to go.”

Mr Powell also said the Federal Reserve would rather make the mistake of taking interest rates too high than easing them too quickly, amid fears that a premature pullback could cause inflation to persist.