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Friday, Aug 22, 2025

Bank of England interest rate increased 0.25 percentage points to 4.5%

Bank of England interest rate increased 0.25 percentage points to 4.5%

The central banks now forecasts no recession this year, upgrading its economic growth forecasts by more than any of its previous reports.

The Bank of England has raised interest rates for a record-breaking 12th successive time, lifting the cost of borrowing to 4.5% and warning that inflation would be higher this year than it previously anticipated.

The Bank's Monetary Policy Committee said that there would be no recession this year, upgrading its economic growth forecasts by more than in any of its previous reports.

It is a dramatic change from only a few months ago, when it was predicting the longest-lived recession in modern British history.

However, it still only results in relatively lacklustre economic growth this year and next.


While it signalled that interest rates may now be at their peak, the Bank also said that it had been surprised by the rate at which food prices are rising, and that meant that wider inflation - the speed at which prices are rising each year - would be stickier this year and next.

The Bank is now forecasting that inflation will be around 5% at the end of this year, rather than the 4% level it previously forecast.

That means the prime minister may come within a whisker of missing his target of halving inflation this year - though the bank's forecasts imply he will narrowly squeak what previously looked like a somewhat unambitious target.

With interest rates now at the highest level since 2008, an increasing number of households are feeling the impact of rising borrowing costs, but the Bank says only a third of the pain from higher mortgage payments had yet trickled into the economy.

The policy committee's vote to change interest rates was split, with seven members voting for the quarter percentage point increase.

But two committee members, Silvana Tenreyro and Swati Dhingra, voted to leave them unchanged.

The committee's new forecasts suggest the economy will grow by around a quarter percentage point this year, compared with a previous forecast of a half percentage point contraction.

That will be followed in 2024 by a three-quarter point increase in gross domestic product, compared with previous forecasts for a quarter percentage point fall.

Chancellor Jeremy Hunt he was still hopeful of reaching his inflation target but admitted "there's never been anything automatic about hitting it".

He added: "Although it's obviously good news the Bank is not now predicting a recession this year, it's very challenging for families with mortgages to see interest rates go up.

"But, unless we tackle rising prices, the cost of living crisis will just continue and that's why it's essential we stick to our plan to halve inflation - and if we do that we can bring certainty back to family finances."

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