Interest rate rises for first time in 3 yrs

Hike to tackle soaring inflation

THE Bank of England has raised interest rates for the first time in three years to tackle soaring inflation.

Its hike from 0.1 per cent to 0.25 per cent came despite fears the new Omicron Covid strain will hit the economy.

This follows a spike in inflation to 5.1 per cent last month – a 10-year high.

Overall, 2.2million people with variable rate mortgages now face a £264million-a-year jump in bills.

But eight in 10 homeowners will be unaffected by the change as they have fixed-rate loans.

City firm AJ Bell said the average borrower with a £131,000 tracker deal would see payments rise by £10 a month. It warned savers not to expect banks to pass on the interest rate rise, which might only bring an extra £7.50 a year for those with £5000.

Debt charity StepChange said people with large borrowings would be worrying about a double whammy of inflation and higher interest rates.

It called on the Government to bring forward the 3.1 per cent rise in benefits due to take effect next April.

The charity’s Richard Lane said: “An early uprating would be a tangible way of supporting households at greatest risk of harm due to the rise in the cost of living.”

The rate increase will also affect firms’ borrowing costs. Mike Cherry, of the Federation of Small Businesses, said: “This move will increase pressure on small firms with debt – four in 10 of which describe their level of borrowing as ‘unmanageable’.”

Shadow Chancellor Rachel Reeves urged Chancellor Rishi Sunak to return from California, where he is meeting tech leaders, to help under-pressure families.

She said: “That must start immediately by scrapping VAT on gas and electricity bills to ease some of the burden this winter.”