04/08/2022
**Interest rates have increased again**
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The Bank of England has raised interest rates from 1.25% to 1.75% in a bid to curb soaring prices and warned the UK will fall into recession this year.
It expects the economy to shrink in the final three months of this year and keep shrinking until the end of 2023.
This would make it the longest downturn since the 2008 financial crisis.
It blamed the slump largely on rising gas prices following Russia's invasion of Ukraine, warning a typical energy bill will hit Β£3,500 in October.
This would mean an average household paying almost Β£300 a month on energy bills.
The Bank says this sharp rise in energy bills, which are set to be three times more than a year ago, will drive inflation - the rate at which prices rise - to 13%, its highest level for 42 years.
Energy bills have already risen sharply this year, squeezing household incomes and leading to slower growth for the UK economy.
Increasing interest rates is one way to try and control inflation as it raises borrowing costs and should encourage people to borrow and spend less. It can also encourage people to save more.
However, many households will be squeezed further following the interest rate rise including some mortgage-holders.
The Bank's governor Andrew Bailey said he knew the cost of living squeeze was difficult for many people, but warned if high inflation lasted a long time that would make things "even worse".
"It will get worse precisely I'm afraid for those who are least well off in society.
"So while I have huge sympathy and huge understanding for those who are struggling most with this, and I know that they will feel, 'Well, why have you raised interest rates today, doesn't that make it worse from that perspective in terms of consumption?', I'm afraid my answer to that is, it doesn't because I'm afraid the alternative is even worse in terms of persistent inflation."