The
Bank of England has warned that the UK will fall into recession this
year as it raised interest rates from 1.25% 1.75% in a bit to curb
soaring prices.
It
expects the economy to shrink in the final three months of this year as
gas prices continue to rise following Russia's invasion of Ukraine.
The Bank says a typical energy bill will rise to £3,500 in October, three times what it forecast a year ago.
It said this would drive inflation, the rate at which prices grow, to 13%.
The
Bank expects the recession to last until the end of 2023 in the longest
downturn since the financial crisis. Though it is not expected to be as
deep as the previous slowdown.
It
warned UK economic growth was already slowing, adding: "The latest rise
in gas prices has led to another significant deterioration in the
outlook for the UK and the rest of Europe".
The interest rate rise is the sixth increase in a row as the Bank of England battles to dampen inflation.
One
way to control price rises is to increase interest rates which
encourages people to borrow and spend less. It should, theoretically,
encourage people to save more.
However, many households will be squeezed further following the interest rate rise including some mortgage-holders.
Homeowners
with an average standard variable rate mortgage will see their monthly
payments rise by £59.17, according to Moneyfacts.co.uk. People with a
typical tracker rate mortgage will have to pay an extra £51.98 a month.
The
Bank's Monetary Policy Committee voted 8-1 in favour of a 0.5% rise.
Inflation is currently running at 9.4% - far above the Bank's 2% target.
A rise to 13% would put inflation at a 42-year high
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