The Bank of England has raised its interest base rate to the highest point since the 2008 global financial crash with the UK’s economy expected to contract.
The Monetary Policy Committee voted by a majority of 5-4 to increase it to 2.25%.
Bank staff said they expected a 0.1% fall in GDP over the current quarter, indicating the country is already in a recession after a reported fall of 0.2% in the second quarter.
It is the seventh time in a row the Bank of England has raised rates in an attempt to curb soaring prices.
The increase of 0.5% from 1.75% means the cost of borrowing is at the highest level since during the 2008 global financial crisis.
Consumer Price Index (CPI) inflation is now set to peak at “just under 11%” in October. This would mark the highest inflation the UK has witnessed since January 1982.
Founder of Money Saving Expert, Martin Lewis, said variable mortgages will rise by £25 a month per £100,000 borrowed.
He said fixed mortgages would not be effected until they end but what borrowers will then be offered will be “much costlier”.
Lewis said many banks would not pass on the rise to savers and that customers should be “prepared to switch” to get better deals.
It comes as inflation has been increasing since December last year to the worst in four decades leading to an increasingly difficult cost of living crisis for millions of people across the country.
In August, the Bank of England increased the base interest rate by 0.5% – the single largest hike in 27 years at the time.
Then, the Monetary Policy Committee said the UK would enter five consecutive quarters of recession this year as people brace for what is set to be a difficult winter with increasing energy bills.