Afternoon summary
Time for a recap:
The Bank of England has vowed to ‘stay the course’ in tackling inflation, after raising UK interest rates for the 12th time in a row.
The BoEs monetary policy committee voted to raise UK Bank Rate to 4.5% at midday today, up from 4.25%. It takes borrowing costs to the highest level since October 2008, the height of the financial crisis.
The increase means almost 1.5 million homeowners with variable rate mortgages face higher borrowing costs.
Hundreds of thousands more on fixed-rate deals will face more expensive mortgages when their deals expire.
In welcome news, the Bank revised up its forecasts for the UK economy. GDP is expected to expand by 0.25% during 2023, a weak performance, but better than the 0.5% contraction previously expected.
BoE governor Andrew Bailey said that the Bank had expected a long, shallow recession, six months ago – but since then energy prices have fallen and economic activity has been stronger than expected.
The Bank expects inflation to start falling from April, having remained stubbornly high at 10.1% in March. But it now expects inflation at the end of the year to be above 5%, compared with below 4% it forecast in February, due to high food prices and a resilient jobs market.
If the consumer price index does halve by December, as Bailey predicts, that would just mean Rishi Sunak could hit his target of halving inflation this year.
Bailey also criticised his chief economist, Huw Pill, for saying last month that people need to accept they are worse off due to the energy prices shock.
The BoE governor insisted the central bank was very sensitive to the situation facing poorer people, but in a rare rebuke said:
The economics of the hit to national income are clear. But I want it to be very clear that we are very sensitive to the position of all people, but particularly people on low incomes.
I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.
"I don't think Huw's choice of words was the right one"
— Bloomberg UK (@BloombergUK) May 11, 2023
BOE Governor Andrew Bailey criticises chief economist Huw Pill for saying people in the UK need to accept they are poorer because of inflation https://t.co/GzcDI48wUo pic.twitter.com/ZUt1R61enc
Chancellor Jeremy Hunt said it was good news that the Bank of England is no longer forecasting recession, but added that today’s interest rate rise will obviously be very disappointing for families with mortgages.
"It is essential that we stick to our plan to halve inflation, and if we do that we can bring certainty back to family finances."
— HM Treasury (@hmtreasury) May 11, 2023
Chancellor @Jeremy_Hunt speaks to the media in response to the @bankofengland's decision today on interest rates. pic.twitter.com/klFP3JDBln
Economists are split over whether the Bank will continue to lift borrowing costs, or if interest rates are close to peaking.
Here’s the full story:
Here’s our economics editor Larry Elliott’s analysis:
Some UK households have warned that they will be unable to copy with such high interest rates:
Plus, here’s the rest of today’s business news so far:
BoE'a Bailey hopes UK interest rate peak is close
Bank of England governor Andrew Bailey has told Bloomberg TV that he hopes UK interest rates are now near their peak.
Speaking after the central bank raised borrowing costs for the 12th meeting in a row, Bailey explained:
“We are approaching the point when we should be able to set to rest in terms of the level of rates.”
But, Bailey added that the BoE did not yet have enough economic evidence to know whether it would need to raise rates further.
