Bank raises interest rates and warns inflation will hit 10%

Government urged to announce more help for struggling households

- Richard Partington

The government is facing calls to launch a fresh package of emergency financial support for households after the Bank of England warned Britain's economy could plunge into recession before the end of the year.

As many people voted in the local elections yesterday, the Bank raised interest rates from 0.75% to 1% to tackle spiralling inflation made worse by Russia's war in Ukraine.

With a fresh jump in home energy bills expected in October, it forecast that inflation would rise above 10% this year, the highest level since 1982. The rate rise brings borrowing costs to levels unseen since the recession caused by the 2008 financial crisis, but the Bank's monetary policy committee (MPC) said action was warranted despite the gathering economic storm clouds.

Andrew Bailey, the Bank's governor, said it had to navigate a "narrow path” between the dual risks of inflation and recession facing the British economy. He said the inflation shock had been made worse by the impact on supply chains from Covid lockdowns in China and the rise in energy costs after Vladimir Putin's invasion.

“I recognise the hardship this will cause for many people in the UK, particularly those on the lowest incomes, often with little or no savings, who are hit hardest by increases in the prices of basic necessities like food and energy,” he said.