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The Bank of England (BoE) has raised interest rates for the 14th consecutive time to 5.25% in a bid to combat inflation.
The bank’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target. At its meeting ending on 2 August 2023, the MPC voted by a majority of 6–3 to raise the rate by 0.25%.
While inflation still remains “well above” the 2% target, the bank said it is expected to fall “significantly further”, to 5% by the end of the year.
The bank noted that the prices of some things such as food are likely to rise faster than this, but said energy bills “should come down more as gas prices have fallen a lot recently”.
It added that higher interest rates will help to reduce the demand for goods and services in the economy, helping to slow the rate of inflation down further.
In its latest monetary policy report, the bank said: “Higher interest rates make it more expensive for people to borrow money and encourage them to save. That means that, overall, they will tend to spend less. If people on the whole spend less on goods and services, prices will tend to rise more slowly. That lowers the rate of inflation.
“We know that means that many people will face higher borrowing costs. Around one in three households in the UK have a mortgage. But high inflation that lasts for a long time makes things worse for everyone, particularly those who can least afford it.”
