The latest increase is the fifth rise since December 2021, with the BoE arguing that rate rises are needed to tackle soaring inflation.
Inflation as measured by the consumer price index (CPI) is expected to rise more than previously predicted, from 9.4% in June to just over 13% in Q4 2022. The Bank still hopes CPI will fall to its 2% target in 2024.
The Bank’s monetary policy council (MPC) voted eight to one in favour of the rise. Andrew Bailey, governor of the BoE, said: “The real risk we’re responding to is that inflation becomes embedded, and it doesn’t come down in the way that we would otherwise expect. “We’ve had a domestic shock. We’ve had shrinkage in the labour
force over the last two years or so.”
Chairman of the Federation of Small Businesses, Martin McTague, said: “Many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase.”
The BoE’s deputy governor, Dave Ramsden, said the Bank will decide whether rates will be increased as the year progresses.