Bank hikes rates to 1% and warns cost crisis will send economy into reverse

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The Bank of England has hiked interest rates to 1% as it warned the economy will go into reverse and that inflation will peak at more than 10% as the Ukraine war compounds a crippling cost of living crisis.

Members of the Bank’s nine-strong Monetary Policy Committee voted 6-3 to increase rates from 0.75% to 1% – the fourth time they have voted for a rise in a row and taking rates to a level not seen since 2009.

Three members called for a bigger increase to 1.25% due to worries over rocketing inflation, with the Bank ramping up its forecast for Consumer Prices Index (CPI) inflation to rise from 7% currently to over 10% in October – its highest level for 40 years – due to soaring energy prices.

Bank of England boss Andrew Bailey recently warned that policymakers were walking a tight line amid the threat of recession (Dan Kitwood/PA) (PA Wire)

In a grim set of forecasts, the Bank predicts growth will contract in the final three months of 2022 as the cost squeeze sees households rein in their spending.