Warning UK economy to shrink as interest rates rise
By Daniel Thomas
Business reporter, BBC News
The Bank of England raises interest rates to 1% from 0.75% as it tries to stem the pace of rising prices.
The Bank of England has warned that the UK economy will shrink this year as it raises interest rates to try to stem the pace of rising prices.
Rates rose to 1% from 0.75%, their highest level since 2009 and the fourth consecutive increase since December.
Inflation, at its highest for 30 years, is set to breach 10% by the end of the year, with fuel, energy and food costs soaring partly due to the Ukraine war.
As a result, people are reining in their spending which is hitting growth.
Raising rates makes it more expensive for consumers and businesses to borrow. The idea is that people start spending less, helping cool demand for goods and services and, in turn, slowing the pace of price rises.
But economists have warned that increases in interest rates may have little effect given rising global oil and gas prices.