Bank of England hikes interest rates to highest level in 13 years

After Reserve Bank of India and US Central Bank, the Bank of England has raised interest rates to their highest level in 13 years as it looks to tackle the cost of the living crisis gripping the UK.

It announced an increase from 0.75 per cent to 1 per cent on Thursday, a level which has not been seen since the aftermath of the financial crisis in early 2009.

The Bank forecast that the UK economy will shrink later this year in the face of double-digit inflation and an unprecedented squeeze on household incomes.

Three of the nine MPC members voted for an even sharper increase of half a percentage point, and the Bank said: "most members of the committee judged that some degree of further tightening in monetary policy might still be appropriate in the coming months".

The Bank's forecast underlines the challenges facing households, with higher energy costs, higher taxes and higher interest rates likely to depress household spending dramatically as the year goes on.

But perhaps most striking of all its forecasts is that inflation, as measured by the consumer price index, would rise to 10.25% towards the end of this year - nearly double its previous forecast of 5.75%.

Bank of England governor Andrew Bailey said the UK was set for "a very sharp slowdown" but declined to call it a recession.