The Bank of England has raised base price from 1.75% to 2.25%, the best it has been since December 2008, in an extra try to sluggish inflation.

It is the seventh time in a row that the Bank’s Monetary Policy Committee has voted to elevate interest rates. The rise on Thursday September 22, though important, is lower than the 0.75% many had been anticipating.

The annual price of inflation within the UK was 9.8% in August, far above the Bank’s goal of two%. The newest rise suggests the Bank is extra involved about high inflation than the chance of recession.

But why does inflation trigger interest rates to rise, and how high could they go?

Why are interest rates going up?

Prices have been rising steadily because the easing of Covid restrictions for a number of causes.

Pent-up demand meant folks spent extra money however as a result of firms are struggling to meet demand, costs are rising. Gas costs have additionally elevated vastly since Russia’s invasion of Ukraine.

The Bank of England has due to this fact raised interest rates to strive to management rising costs.

Raising interest rates makes borrowing dearer, which ought to encourage folks to borrow much less money and due to this fact spend much less. This ought to help curb inflation.

But the Bank of England additionally doesn’t need to decelerate the economic system an excessive amount of – so how a lot increased could interest rates get?

How high could interest rates rise?

There is not any higher restrict and UK interest rates could be elevated again after Thursday’s rise to 2.25%.

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