The Bank of England has imposed the biggest interest rate rise for decades as it bids to ease the cost of living crisis and tackle soaring inflation.
And the Bank has also warned the UK could be on course for its longest recession since reliable records began a century ago.
The Bank's Monetary Policy Committee voted by 7 to 2 to lift the Bank’s base interest rate from 2.25% to 3% - the highest level since 2008. It's the biggest single increase since 1989.
This is the eighth time in a row that the Bank has lifted interest rates. The rate was 0.1% less than a year ago.
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The Bank has also warned that if current market expectations are correct, the UK economy could fall into eight consecutive quarters of negative growth. That would be the longest period of economic decline the nation has seen for 100 years.
However its analysts say this would be a milder recession than earlier ones.
However, it would be a milder recession than in previous times. Gross domestic product is expected to drop 2.9%, a much smaller decrease than the 6.3% drop seen during the 2008 financial crisis.
The Bank also predicted inflation would peak at around 11% at the end of this year. The unemployment rate could hit 6.4% by the end of 2025.
Markets had been predicting a rise of as much as one percentage point, but they calmed after the change of Prime Minister and Chancellor and the shelving of Kwasi Kwarteng's mini-Budget. That, alongside the Bank of England's bond purchases, helped push down the cost of borrowing.
The appetite for big rate hikes globally also appears to be falling. In America, the Federal Reserve raised rates by another 0.75 percentage points on Wednesday, but while further increases are likely the institution suggested they could be smaller.
Similarly, the Bank of Canada lifted its interest rate by 0.5 percentage points, defying predictions of a 0.75 percentage point rise.
Last month Bank of England Governor Andrew Bailey had warned today's rise could be bigger than last month's 0.5 percentage point increase to 2.25%.
Analysts had also been expecting today's gloomy economic forecasts.
Analysts at Deutsche Bank said: “Conditioned on market pricing, the UK economy will likely fall into a deeper and more prolonged recession.”
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