Mortgage payers are braced for higher borrowing costs, after the Bank of England pushed up its base rate by 0.5 percentage points to 3.5% .
The Bank hiked interest rates on Thursday for the ninth time in a year, to the highest level in 14 years, but told borrowers to prepare for fresh increases in the new year.
Members of the Bank’s monetary policy committee (MPC) voted to increase the cost of borrowing after the consumer prices index (CPI) in November showed annual inflation of 10.7%.
Governor Andrew Bailey said a fall in CPI from 11.1% in October represented “the first glimmer” that inflation had begun to ease and he expected a rapid fall, “probably from the late spring onwards”.
His comments, which appeared to show further rate rises could peak below forecasts of 4.5% by the end of next year, sent the pound tumbling against the dollar by 2 cents.
Bailey forecast skill shortages would push wages higher and prevent inflation falling towards the Bank’s 2% target as fast as he hoped.
“There is a risk that [inflation won’t fall] in that way, particularly because the labour market and the labour supply in this country is so tight.
“And that’s why, really, we had to raise interest rates today, because we see that risk as really quite pronounced.”
Debt charity StepChange said higher borrowing costs would plunge more people into debt and called on lenders to show restraint before calling in loans.