The Bank of England has hiked interest rates to 0.75% at noon today, representing highest increase since March 2020.
The Bank of England’s announcement immediately caused share prices across major UK banks to drop, with Lloyds declining 1.6% to 47.7p, NatWest losing 4.6% to 10.3p and Barclays seeing a dip of 2.4% to 170.9p at the time of writing.
The move follows expert consensus that inflation is expected to rise to 8% in April 2022.
Analysts said that the rising interest rates have set UK households up for a year of uncertainty and slashed consumer budgets.
“UK consumers now face an annus horribilis, as rising borrowing costs will be compounded by higher food and energy bills, and tax rises to boot,” said AJ Bell head of investment analysis Laith Khalaf.
“Interest rates will mean savers getting a bit more return on cash held in the bank, but elevated inflation means they will actually be worse off.”
The Bank of England are scheduled to announce further increases in interest rates later in the year, with expectations of rates hitting the 2008 crash level of 1.75%.
“Markets expect four more increases this year on top of today’s, meaning that by Christmas 2022 we’ll have a base rate of 1.75%, if the expectations are to be believed,” said AJ Bell head of personal finance Laura Suter.
“At that level we’d be returning to the interest rates of 2008, around the time of the market crash.”
Khalaf added, “unless you want egg on your face, it’s best not to count your chickens before they’re hatched when it comes to monetary policy, but it looks pretty clear that central banks are intent on several further rate hikes as we move through 2022, to help stave off the real and present danger of sustained inflation.”