THE Bank of England has raised interest rates for the 12th time in a row to its highest level since 2008.
Seven members of the Bank’s Monetary Policy Committee (MPC) voted to increase the base interest rate to 4.5% from 4.25%.
The SNP said the latest increase meant “millions of Scottish families are paying the price for Tory failure” as mortgage rates rise and food costs continue to inflate.
Housing costs such as mortgages and rents have rocketed in the last two years – up 26% on average, according to the National Association of Property Buyers.
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Labour’s shadow chancellor, Rachel Reeves, said: “The Prime Minister should take his fingers out of his ears and admit his personal responsibility for a Tory mortgage crisis leaving so many worse off.”
Food prices have stayed higher for longer than expected, the Bank of England said as it raised interest rates, partly due to Russia’s war in Ukraine and poor harvests in some European countries.
It means Consumer Prices Index (CPI) inflation is expected to decline less rapidly than the Bank predicted in its last report in February.
Prime Minister Rishi Sunak (below) promised in January to “halve inflation” as one of his five core pledges. At the time, it seemed likely to occur regardless of Conservative intervention, but more recent forecasts suggest Sunak will miss the target.
The National Institute of Economic and Social Research said on Thursday that the rate of inflation would remain “persistently elevated” and might fall to 5.4% by the end of 2023. The latest figures for March show inflation is at 10.1%, the same as in January.
However, inflation is still expected to drop sharply from April this year, as energy prices decline and household bills are subsidised, the MPC said.
“There remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target,” it added.
The impact of higher rates has yet to be widely felt for households across the country, partly because many borrowers are tied to fixed-rate mortgages that have not renewed yet.
Meanwhile, economists at the Bank released a record upgrade to their economic growth expectations.
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They now expect that gross domestic product (GDP) will not fall during a single quarter this year, meaning the economy is not set to decline and the UK could avoid a recession.
In February, the committee had thought the economy could fall into a shallow recession starting from the first three months of the year.
The increase of 2.25 percentage points over the three-year forecast period marked the biggest upgrade since the MPC was formed in 1997.
“The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households,” the report explained.
Nevertheless, higher food and energy prices will continue to disproportionally hit families on lower incomes as the items typically make up a larger share of overall spending, the Bank said.
Just two of the Bank’s nine-member MPC voted to keep interest rates the same at 4.25%.
Commenting, SNP economy spokesperson Stewart Hosie MP said: "Millions of Scottish families are paying the price for Tory failure, as the cost of living soars – showing exactly why Scotland needs independence to escape the damage of Westminster control.
"The SNP is the only party offering a real alternative. The Tories and pro-Brexit Labour Party are making the cost of living worse by imposing cuts and a hard Brexit that's harming the economy.
"With interest rates rising, yet again, households across Scotland are being forced to foot the bill for this Tory mortgage premium, with payments increasing by hundreds of pounds.
"The UK Government must deliver urgent support for struggling households – and prevent families falling into arrears through no fault of their own.”
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