Bank of England announces back-to-back interest rate rises

Ricky Banham
Financial Planning, News
Ricky Banham, Lovewell Blake Financial Planning

Following our article in December the Bank of England (BoE) has tightened the squeeze on household finances with its first back-to-back interest rate rise since 2004, as the central bank forecast inflation will increase to north of 7% in April.

Ricky Banham, Lovewell Blake Financial Planning

By a majority of five to four, the BoE Monetary Policy Committee voted to increase the cost of borrowing on Thursday 03 February from 0.25% to 0.50%. The minority wanted an even larger increase to 0.75% to get a grip on surging inflationary pressure.

Economists widely predicted the move, with the Monetary Policy Committee expected to increase interest rates further in the coming months.

What is the BoE base rate?

The base rate is the is the single most important interest rate in the UK. It determines the interest rate the BoE pays to commercial banks that hold money with them. It influences the interest rates that the banks charge people to borrow money or pay on their savings accounts.

What’s causing the surge in inflation?

The increase in the base rate comes as the chancellor unveiled a support package to help households cope with a 54% jump in energy bills. The majority of inflation is currently being driven by energy prices and those are set internationally. A domestic rate rise will have very limited impact on the rising cost of energy prices for households. The other main driver for inflation is higher food and clothes cost. These have increase due to supply chain issues – shipping containers are in short supply, pushing up prices for those shifting goods around the world.

What does the increase in interest rate mean?

The decision to raise interest rates will make borrowing more expensive, potentially hitting some households harder. Conversely, the level of interest payable to consumers should increase, although this is generally a very small rise, with the best deals reserved for longer-term fixed rate accounts.

The BoE cannot do much to ease the energy price shock or surging price rises in some consumer goods, so it is sticking to its job by trying to keep inflation stable.

If you have any questions

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.



This is a test definition