Members of the Bank’s Monetary Policy Committee (MPC) voted eight to one to increase rates from 0.5% to 0.75%. This marks the third rise in a row.
One policymaker voted to keep rates at 0.5% amid fears over the impact of the cost-of-living squeeze on wider economic growth as households and businesses are expected to rein in spending due to soaring costs.
In the minutes of this latest decision, the Bank has warned that more rate rises may be required.
— Bank of England (@bankofengland) March 17, 2022
This comes as it lays out a bleak inflation outlook with the Consumer Prices Index now set to reach around 8% in the second quarter.
It said that, if wholesale energy prices continue to soar, UK inflation could rise even further by the end of the year and potentially be “several percentage points higher” than the 7.25% peak forecast last month.
How would high inflation affect households?
In finance, inflation refers to a general increase in prices and a fall in the purchasing value of money.
When the general price of items rises during inflation but the value of money stays the same, consumers can buy fewer items and goods for the same monetary sum.
Therefore, higher inflation would mean people’s money would have less and less purchasing power.
As a result, savers may suffer and households may find it harder to stay within their budgets.
Coupled with an already-existing cost of living crisis and an energy cost hike, it will cause a tight squeeze for many households.