Inflation hit a 30-year high in December. A higher interest rate makes it more expensive to borrow money and less money is available, which leads to lower rates.
This was the first time since 2004 that interest rates in the UK had been raised for the second time in a row. The interest rate went to 0.5 percent. In December, the rate was already raised to 0.25 percent. The interest rate move was in line with economists’ expectations.
The central bank also raised its inflation expectations. It will now peak at 7.25 per cent in April, according to the Bank of England. In December, inflation was still expected to peak at 6 percent. Thus, inflation is well above the central bank’s 2 percent target.
UK consumer prices rose 5.4 percent in December last year. As a result, British households’ purchasing power is rapidly declining, with prices for everyday goods and services rising faster than wages. Meanwhile, the British government is looking at measures to mitigate the sharp rise in energy bills, which will hit in April if the maximum tariffs that energy companies can impose are raised.
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