The Bank of England has raised interest rates to 2.25% from 1.75% – the highest level since November 2008.
People across the UK are bracing themselves for further problems after the Bank also said it now expects a 0.1% fall in GDP over the current quarter, indicating that the country is already in a recession.
Five members of the Bank of England’s Monetary Policy Committee voted to raise its interest base rate from 1.75% to 2.25% while three voted for a steeper increase to 2.5%, the Bank said.
It said that uncertainty in the outlook for energy prices has fallen after the Government announced it would cap bills at £2,500 for the average household for two years.
The committee also voted unanimously to reduce quantitative easing by £80 billion over the next 12 months to £758 billion.
Liberal Democrat Treasury spokeswoman Sarah Olney said the interest rate rise would be a "hammer blow to struggling homeowners who are being punished by the Government's failure to control inflation".
"This monster rate rise could have been avoided if Conservative ministers bothered to take action sooner on energy bills and the rising cost of living," she said.
"Instead, the Bank of England is left with no choice but to hike mortgage costs for millions."
She said Liz Truss should "bail out families and pensioners who will suffer as a result of this mortgage hike".
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