The Bank of England (BoE) has increased interest rates by a further 0.75%, marking the largest single rise to rates for 33 years.

It takes the Bank’s base rate to 3%, which has climbed continuously through the year since it stood at 0.1% last December.

The decision also means this is the first time that interest rates have hit 3% since November 2008, in the midst of the financial crisis.

Today’s rise by the Monetary Policy Committee (MPC) at the BoE means it is now the eighth consecutive increase in interest rates. At its latest meeting, the MPC voted by a majority of seven to two to increase the base rate by 0.75%, to 3%. One member voted for a 0.5% rise, to 2.75%, while another member would have preferred to increase the rate by 0.25%, to 2.5%.

It is the first rates decision since the former Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng announced their mini-Budget which caused turmoil across financial markets and allowed mortgage rates to soar.

The BoE said that since its previous MPC meeting, there have been “significant developments in fiscal policy”.

In its statement, the Bank also revealed that the majority of the Committee has judged that should the economy evolve broadly in line with its latest Monetary Policy Report projections, further increases to its base rate “may be required”, for a sustainable return to its 2% inflation target.

Reacting to the move by the BoE, national operations director at Just Mortgages, John Phillips, said: “While the BoE may be stuck in limbo slightly ahead of the autumn budget, many lenders already priced in such a hike, which will negate any impact on current mortgage rates.
 
“Nonetheless, this is a very challenging time for consumers, especially for those that need to move rather than want. While the changes in government have helped calm rates and brought more products and lenders back to market, those needing to upgrade, downsize, relocate or remortgage are still facing a real price shock and rise in household outgoings.

CEO at fintech broker Loan.co.uk, Paul McGerrigan, said that another interest rate increase was “inevitable” as the MPC uses its limited range of tools to try to balance the books.

“Given that inflation is at a 40-year high, at least in the short-term, action needed to be taken,” McGerrigan commented.
 
“These are tough calls. It could be a challenging couple of quarters, but UK Plc has proven to be robust and resilient in the past and will no doubt prove to be again. On paper, and based on recent events, the new Prime Minister and his team have more experience and depth in economics and fiscal policy, whether you agree with their politics or not. So let’s see what they come up with later this month.
 
“Borrowers have big decisions to make, and they need help. The role of the mortgage broker and IFA has never been more important or needed.”

Savings expert at M&G Wealth, Les Cameron, added: “With the UK in the midst of a cost of living crisis, this is going to be the case for many, and could really have a detrimental effect on people’s savings and those repaying debt which is not on a fixed rate.

“With budgets being squeezed people will inevitably look at cutting costs. It’s important to think very carefully about stopping pension contributions, as your employer may be matching these contributions which is a valuable benefit to give up. Rebuilding your pension fund to where you could have been if you had not stopped could be hard. 

“Reviewing your finances and ensuring your money can be resilient against future challenges is now more important than ever. Seeking professional financial advice can be the best place to start.”

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