The Bank of England has hiked interest rates to their highest level since 2009. 

Rates have risen to 1 per cent from 0.75%, the fourth consecutive increase since December.

The bank's nine-member Monetary Policy Committee (MPC) voted six to three for the rise. Those who voted against wanted an interest rate of 1.25%

And they’ve warned of a grim year ahead, with inflation peaking at 10%.

In its report, the MPC said the jump in energy prices, partly sparked by Russia's invasion of Ukraine will drive the growth in inflation.

They've also warned that the economy could shrink as the cost of living crisis leads to households cutting their spending.

The Herald:

"Global inflationary pressures have intensified sharply following Russia's invasion of Ukraine. This has led to a material deterioration in the outlook for world and UK GDP growth," the MPC said.

"UK GDP growth is expected to slow sharply over the first half of the forecast period. That predominantly reflects the significant adverse impact of the sharp rises in global energy and tradeable goods prices on most UK households' real incomes and many UK companies' profit margins."

The MPC said inflation was expected to rise further over the remainder of the year, "to just over 9% in 2022 Q2 and averaging slightly over 10% at its peak in 2022 Q4." 

“The majority of that further increase reflects higher household energy prices following the large rise in the Ofgem price cap in April and projected additional large increase in October.

“The price cap mechanism means that it takes some time for increases in wholesale gas and electricity prices, and their respective futures curves, to be reflected in retail energy prices.

“Given the operation of the price cap, consumer price inflation is likely to peak later in the United Kingdom than in many other economies, and may therefore fall back later.

“The expected rise in CPI inflation also reflects higher food, core goods and services prices.”