Interest rates - live: Bank of England predicts ‘shallow’ recession but warns ‘it’s not over yet’

Central bank confirms further 0.5 per cent hike, bringing base rare to 4 per cent

UK economy set to shrink in 2023 in weakest performance among G7, IMF warns

The Bank of England has said that the UK’s recession will be shallower than expected but warned that it is “too soon” to declare “victory” over inflation as it hiked interest rates for the 10th consecutive time.

The UK’s central bank announced at noon it was - as widely expected - increasing the base rate by 0.5 per cent to 4 per cent, in a further blow to borrowers and those on tracker mortgage deals.

"It is too soon to declare victory just yet. Inflationary pressures are still there," Mr Bailey said in a press conference as he explained why the Bank had chosen to hike yet again as millions struggle with the cost of living squeeze.

He added that the Monetary Policy Committee had softened its language on future rises in interest rates because the economy is turning a corner on inflation.

"I think that reflects that we have seen a turning of the corner, but it’s early days and the risks are very large. And it’s really that which shapes where we go from here,” he said.

Key Points

• Analysts expecting hike of 0.5 per cent
• Base rate currently at 3.5%
• Bank of England to announce decision on interest rates

[2 February 2023 16:16 · Katy Clifton]

Thanks for following our live updates, we are pausing our coverage for the day but you can catch up with today’s interest rate news below:

[2 February 2023 15:27 · Katy Clifton]

‘Real national income is inescapably lower'

Deputy Bank governor Ben Broadbent addressed the risks that employers raising staff wages could lock in high inflation.

He said: “Faced with this massive real income squeeze, which is a result of war and the pandemic, the attempt to claw that back – for firms to maintain the real value of their profits, and employees to maintain the real value of their wages – collectively, that’s not possible.

“Real national income is inescapably lower as a result of these shocks.

“It’s not that we intrinsically want lower real-wage growth – it’s that both wages and prices are telling us about the strength of this reaction, and ultimately the persistence of inflation.”

He added that employers “bidding each other up” does not ultimately make people better off.

[2 February 2023 14:30 · Matt Mathers]

Martin Lewis reveals what latest interest rate rise means for mortgage holders

Financial expert Martin Lewis has responded to the Bank of England’s decision to raise interest rates to 4 per cent in a bid to tame sky-high inflation.

Mr Lewis, the Money Saving Expert founder, said the UK central bank’s tenth-rate hike in a row would result in further pain for some mortgage holders.

People who are on deals linked to the Bank’s base rate will face hundreds of pounds of additional costs, he said.

Writing on Twitter, Mr Lewis said: “Variable/tracker rate repayment mortgages will rise [around] £25/mth (£300/yr) per £100,000 of mortgage.

“Existing fixes won’t change. New fixed rates [have] already baked rises in.”

[2 February 2023 14:15 · Emily Atkinson]

Interest rates hike a ‘hammer blow to hardworking families'

The Liberal Democrats have described the raising of interest rates for the tenth consecutive time a “hammer blow to hardworking families across the country.”

Taking to Twitter on Thursday afternoon, the party said: “The blame lies squarely with this Conservative government whose botched budget last year sent our economy spiralling and who’ve completely failed to get inflation down.”

[2 February 2023 14:00 · Matt Mathers]

How interest rate rise will affect property market and mortgages

The Bank of England’s decision to hike interest rates to a 15-year high is set to see mortgage payments rise for millions of homeowners.

On Thursday, the Bank confirmed UK rates will rise for the tenth time in a row, to 4 per cent from 3.5, in a bid to control inflation after it reached a record 11.1 per cent in October.

The Bank has faced a tough call over what approach to take, as higher mortgage costs saw the housing market suffer five successive months of falls in property prices.

My colleague Will Mata has more details:

[2 February 2023 13:38 · Emily Atkinson]

Impacts of Brexit hitting economy faster than expected, says BoE boss

Ben Broadbent, deputy governor for monetary policy at the Bank of England, said the impact of Brexit on the economy was coming through faster than first expected.

He said it was not clear if Brexit effects were a reason why the UK is forecasted to do worse than other major economies this year.

The International Monetary Fund (IMF) warned earlier this week that Britain would be the only major economy to see a contraction this year and the Bank said it also saw output for the UK this year being weaker than the eurozone or US.

Mr Broadbent said Brexit was one factor impacting the UK economy, but also a shrinking labour market, higher dependency on gas than other countries and a greater pass through of interest rates to borrowers.

Mr Broadbent said: “Brexit... has been something that has pulled on our potential output in our country and that’s been our assessment for many years.

“We’ve not changed our estimate of the long-running effects, but we’ve brought some of them forward and we think they’re probably coming in faster than we first expected.”

He added: “Yes it’s (Brexit) having some effect on growth, although ultimately no bigger effect than we assessed some years ago.

“Based on the numbers for trade and some degree for the numbers on investment, we think these effects are coming through faster than initially envisaged.”

[2 February 2023 13:20 · Matt Mathers]

Bank of England raises interest rates again in 10th consecutive hike

The Bank of England has raised interest rates for the tenth time in a row lumping further pressure on mortgage borrowers.

Decision makers on the Bank’s Monetary Policy Committee (MPC) opted to hike the base rate from 3.5% to 4%, to help bring down double-digit inflation.

The Bank said that the UK is still headed for a recession, but stressed that the economic downturn could be shallower and shorter than previously expected.

Full report:

[2 February 2023 12:48 · Matt Mathers]

Too soon to declare victory - Bailey

Bailey adds that the Bank expects service sector inflation to keep rising in the “near term”.

He adds that while the Bank is confident inflation will come down, developments over the coming quarters will be “crucial” in determining by how much.

He adds consumer prices index (CPI) inflation is expected to fall below the Bank’s 2 per cent target rate in the spring of 2024, as long as energy prices fall as expected.

“It is too soon to declare victory just yet. Inflationary pressures are still there,” he added.

[2 February 2023 12:43 · Matt Mathers]

Inflation will be around 4% by end of year - Bailey

Bailey said inflation would fall to around 4 per cent “by the end of the year”.

The governor warns, however, that the Bank’s concerns about inflation are not linked solely to energy prices.

He said other inflationary pressures are proving more difficult than expected.

He says the labour market remains tight and cites pay rises in the private sector.

[2 February 2023 12:38 · Matt Mathers]

‘Turning a corner'

Bank of England governor Andrew Bailey is giving a press conference after announcing a 0.5 per cent hike in interest rates.

He said that the UK appears to be “turning a corner” in terms of inflation coming down. He says this has a lot to do with energy prices.

“Wholesale gas prices have fallen by around 50 per cent,” he says.