The Bank of England has raised interest rates to 4% - its tenth rise in a row.
The Bank's Monetary Policy Committee voted by a majority of 7–2 to increase the Bank Rate by 0.5 percentage points, to 4%.
But many analysts think the Bank may be heading towards the end of its cycle of rate hikes - which could be good news for borrowers. Rates could peak at 4.5% or 4.25% next month, before coming back down.
Last month, Bank of England Governor Andrew Bailey told BusinessLive he thought inflation would fall "quite rapidly" this year. He also said the UK was set for a short and shallow recession but warned the bank would continue to monitor the effects of the UK's tight labour market.
READ MORE: Bank of England Governor Andrew Bailey on inflation, interest rates and recession
Today's statement from the MPC said global consumer price inflation remained high but "is likely to have peaked across many advanced economies, including in the United Kingdom."
It said: "Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices. However, the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation.
"The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. There are considerable uncertainties around the outlook. The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
On Tuesday, the International Monetary Fund (IMF) predicted the UK would be the only major economy to plunge into recession this year. Chancellor Jeremy Hunt insisted the UK’s long-term prospects for growth remained good despite the IMF's expectation the economy would contract by 0.3%.
Interest rates have been rising for more than a year as the bank bids to help control inflation.
In December 2021 he base rate was 0.1% as policymakers attempted to encourage consumer spending post-Covid, but the Bank has since focused on trying to bring inflation back down to its 2% target.
The consumer prices index (CPI) inflation rate slipped slightly to 10.5% in December, down from 10.7% in November and 11.1% in October, leading to hopes that inflation may have passed its peak.
Anna Leach, Deputy Chief Economist at the CBI, said: “The Bank’s decision this month shows that it is still too soon to call an end to peak interest rates.
“While inflation is coming down thanks to lower energy prices, labour market shortages and broader inflationary pressures mean higher rates are still needed to bring inflation back to the 2pc target.
“Rising interest rates, high inflation and tightening fiscal policy will challenge economic growth this year. The government needs to act decisively in the forthcoming Budget to reinforce the UK’s position as a global centre for innovation and the low carbon economy.”
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