The Bank of England’s (BoE) has raised its base rate by 0.5% to 3.5% in a move likely to heap further pain on the country’s borrowers, including mortgage holders.

In a statement published this afternoon, the bank said it now expects UK GDP to contract by 0.1% in the fourth quarter of 2022, 0.2 percentage points stronger than was expected last month.

“Household consumption remains weak and most housing market indicators have continued to soften. Surveys of investment intentions have also weakened further.”

The bank said in November that projections suggested the UK economy is expected to be in recession for a prolonged period and CPI inflation had been expected to remain very high in the near time.

The UK’s Office for National Statistics (ONS) announced yesterday (Wednesday) that inflation fell at its sharpest rate in 16 months in November, down to 10.7% from 11.1% in October, still far above the bank’s target of 2%.

The bank said today: “Inflation had been expected to fall sharply from mid-2023, to some way below the 2% target in years two and three of the projection.”

“This had reflected a negative contribution from energy prices, as well as the emergence of an increasing degree of economic slack and a steadily rising unemployment rate. The risks around that declining path for inflation had been judged to be to the upside. ”

Interest rates are now at their highest in more than a decade. The latest rate increase rise will bring further financial pain to UK house-holders, many of whom are struggling with the costs of heating their homes amid high energy prices, in a week where temperatures have fallen below freezing across the country.

imogen.lillywhite@lseg.com