The Bank of England (BoE) has confirmed it is increasing its base rate to 1%.

At its latest meeting this week, the Bank’s Monetary Policy Committee (MPC) voted by a majority of 6-3 to increase interest rates by 0.25 percentage points, up from 0.75%.

Members in in the minority had opted to increase the base rate by 0.5 percentage points to 1.25%, the BoE confirmed.

The latest increase takes interest rates to their highest level since 2009, as the MPC seeks to tackle record levels of inflation.

It comes after the Office for National Statistics reported the 12-month CPI inflation rate had climbed to 7.0% in March – the highest rate of inflation for 30 years – and a figure around one percentage point higher than the Bank had been expecting in its February Report.

In the BoE’s May Report central projection, CPI inflation is expected to rise even further over the remainder of the year, to just over 9% in Q2, and is forecast to average slightly over 10% at its peak in Q4.

“The majority of that further increase reflects higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October,” the BoE stated in its report.

Reacting to the rate increase, co-founder and COO of Perenna, Colin Bell, said: “The rise will negatively impact those mortgages on a standard variable rate and other variable debt, meaning they will need to pay more each month, at a time when they are also having to combat rising energy, food and fuel prices. These interest rate rises are being drip fed out to avoid large shocks, but as we have seen they are now regular and likely to continue, the cumulative effects are starting to be felt.
 
“We’ve seen lenders pull 500 mortgage products from the market in March alone and average rates on two-year fixes reach seven-year highs. This is clearly having a detrimental impact on consumers’ ability to get onto the property market.

“Flexible long-term fixed rate mortgages can provide a solution to the problem, allowing individuals to better manage their monthly outgoings, while avoiding any unnecessary stress caused by multiple interest rate rises.”

Director of investments at Wesleyan, Martin Lawrence, added: “While time will tell how much this helps to temper soaring inflation, what’s certain is it will have immediate effects on individuals’ finances – for some, compounding the pressures they’re already facing amid the rocketing cost of living.
 
“One group who might be negatively affected are those with a tracker or standard variable rate mortgage, which can change in line with fluctuations in the BoE’s base rate. Following today’s announcement, households already struggling to make ends meet could end up potentially paying hundreds of pounds more in annual repayments.
 
“On the other hand, interest rate rises can be good news for savers. However, any extra interest will still fall far short of current inflation rates, meaning hard-earned money held in simple savings accounts will continue to be at risk of losing value in ‘real terms’ – gradually buying less and less over time.”

The Bank’s 0.25 percentage point increase follows successive rate rises of the same amount, after the MPC increased rates to 0.5% at its meeting in February, and to 0.75% at its previous meeting in March.

With the base rate now being increased to 1%, and consistent with the MPC’s previous guidance, the BoE confirmed that the Committee will consider beginning the process of selling UK government bonds held in the Asset Purchase Facility.

“The Committee reaffirms that the decision to commence sales will depend on economic circumstances including market conditions at the time, and that sales would be expected to be conducted in a gradual and predictable manner so as not to disrupt the functioning of financial markets,” the BoE stated.

The MPC’s next decision on the base rate is due on 16 June.

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