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More pain for Britons as Bank of England hikes interest rates by 0.5%

Britons are in more pain today after the Bank of England further hiked interest rates to curb rampant inflation.

The key interest rate is up another 0.5 percentage point to 2.25 percent – the highest in 14 years – but the bank stuck to the 0.75 percentage point increase that many had expected.

The move will put mortgage payers in trouble and make borrowing more expensive for the government – just as Chancellor Kwasi Kwarteng is preparing to spend hundreds of billions of pounds on utility bills and tax cuts in his mini-budget tomorrow.

The lower rise came despite it becoming increasingly desperate to show its determination to get a handle on inflation, which is nearly five times the target at 9.9 percent.

Price pressures, caused by the war in Ukraine and Russia’s manipulation of gas supplies, have been exacerbated by the plight of the pound against the US dollar – the currency in which many important resources are traded internationally.

Sterling fell to just 1.12 against the greenback overnight after the US Federal Reserve imposed its own 0.75 percentage point rate hike – though it recovered some ground this morning.

Higher central bank interest rates make currencies more attractive to markets.

Bank of England governor Andrew Bailey has urged it to take measures to keep prices in check

Bank of England governor Andrew Bailey has urged it to take measures to keep prices in check

Today would be the seventh month in a row that the Bank has raised interest rates, although the level is still quite low historically

Today would be the seventh month in a row that the Bank has raised interest rates, although the level is still quite low historically

Today would be the seventh month in a row that the Bank has raised interest rates, although the level is still quite low historically

Sterling has fallen to just 1.12 against the dollar overnight after the Federal Reserve imposed its own 0.75 percentage point rate hike

Sterling has fallen to just 1.12 against the dollar overnight after the Federal Reserve imposed its own 0.75 percentage point rate hike

Sterling has fallen to just 1.12 against the dollar overnight after the Federal Reserve imposed its own 0.75 percentage point rate hike

The rise in the cost of living has wreaked havoc on public finances. The £2.4 trillion interest bill on Britain’s mountain of debt reached £8.2 billion last month, the highest August figure since records began in 1997, according to the Office for National Statistics.

The respected think tank the Institute for Fiscal Studies has warned that Liz Truss’ vow to spend more on the energy bailout and tax cuts is “a gamble on growth that may not pay off.”

Today would be the seventh consecutive month that the Bank has raised interest rates. The decision was postponed from last week as the country mourned the queen.

While raising the key interest rate above the current 1.75 percent should help tame inflation by encouraging savings rather than spending, it also raises the cost of borrowing for everyone and puts a damper on the already stagnant economy. economic growth.

On a typical £250,000 mortgage, monthly payments are expected to increase by £100 after the 0.75 percentage point increase.

The level of rates is still relatively low historically, but Britons have become accustomed to being close to zero since the credit crisis.

Banking governor Andrew Bailey has insisted it will take steps to rein in prices, and a hike below the Federal Reserve-imposed hike could lead to more chaos in the markets.

In stark estimates last night, the IFS said the government’s spending plans could lend the UK £231bn this year – more than double the £99bn officially forecast in March.

It will still borrow £100 billion a year by the mid-2020s, more than £60 billion higher than previously forecast, the think tank added.

Higher growth could offset this, but it would be difficult to achieve, it said. Carl Emmerson, deputy director of the IFS, said: “While we would get lower taxes now, an ever-increasing debt would eventually prove unsustainable.

The government is choosing to ramp up borrowing when it becomes more expensive to do so, in a gamble on growth that may not pay off.

“Getting that scale of increase in trend growth, while not impossible, would require either good luck over a long period of time or a concerted change in policy direction.”

Ms Truss has argued that a change of direction from her predecessors is needed to boost Britain’s growth.

Britain's £2.4 trillion interest bill reached £8.2 billion last month, the highest August figure since the record began in 1997

Britain's £2.4 trillion interest bill reached £8.2 billion last month, the highest August figure since the record began in 1997

Britain’s £2.4 trillion interest bill reached £8.2 billion last month, the highest August figure since the record began in 1997

Rather than choose to pump more money into the Treasury’s coffers through ever-increasing taxes, she has vowed to lower them in an effort to make Britain a more attractive country in which to do business.

Mr. Kwarteng said yesterday: ‘I have committed to deleveraging in the medium term. But despite a major economic shock, it is absolutely right that the government is taking action now to help families and businesses, just as it did during the pandemic.”

The US central bank raised interest rates for the third time in a row last night. The Federal Reserve raised interest rates by 0.75 percentage points, raising the target interest margin from 3 percent to 3.25 percent. It warned of “continuing rises” as it tackles rising prices.

The move followed that of the European Central Bank, which raised interest rates by 0.75 percentage point for the first time this month since the introduction of the euro in 1999.

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