Following a month of political and economic turmoil, the Bank of England has set the base rate to levels not seen in decades. All eyes were on the central bank today as they held their seventh monetary policy meeting of the year to combat unprecedented inflation. As expected, the committee members confirmed a hike of 0.75 percentage points, taking the rate to 3%.
This is the eighth rise in a row as the UK battles on with a cost-of-living crisis. Food prices and the energy crunch has continued to impact the economy. In September consumer prices inflation hit 10.1%, up from August. Eurozone inflation also reached double digits this month as it climbed to 10.7% - the highest level on record.
A lot has happened in the last few weeks. Since September’s MPC meeting, the UK has experienced one of the most volatile times in economic history. Liz Truss' mini budget, which included £45 billion in unfunded tax cuts, caused a spike in government borrowing costs, forcing an emergency Bank of England intervention.
Earlier this month there was talk of a higher rate increase, however the appointments of new Prime Minster Rishi Sunak and Chancellor Jeremy Hunt seemed to calm predictions. Sunak has scrapped the cuts and is expected to soon reveal a new fiscal strategy.
Nevertheless, a single increase of 75bps is a much stronger response than originally expected back in August.
The Bank of England forecasts a gloomy economic outlook with the UK headed for a prolonged recession. It also warned that CPI inflation would remain over 10% in the near term and that the unemployment rate could climb to 6.5% in the coming years. By raising interest rates, it believes it will encourage people to spend less by making it expensive to borrow.
The time for saving is now.
Less than a year ago, the base rate was just 0.1%. Now at 3%, the amount available to earn on savings has dramatically grown. It is now even more expensive to be an inactive saver.
To make every penny count, savers should check they are earning the maximum possible interest on their savings. Some banks have not caught up with competitive rates, and cash sat in these accounts is losing more value over time.