The Bank of England has increased interest rates to 5.25 per cent, the highest level for 15 years and the fourteenth hike in a row, in an attempt to bring inflation back to its 2 per cent target.

The Monetary Policy Committee (MPC) voted the new rate by six to three; only one member favoured retaining the previous 5 per cent rate, while two voted to increase by half a point to 5.5 per cent.

The consumer price index (CPI) dropped to 7.9 per cent in June, from 8.7 per cent in May. In its statement on the decision, the MPC said: “CPI inflation remains well above the 2 per cent target.

"It is expected to fall significantly further, to around 5 per cent by the end of the year, accounted for by lower energy, and to a lesser degree, food and core goods price inflation. Services price inflation, however, is projected to remain elevated at close to its current rate in the near term.”

Commenting on the increase, PensionBee director of public affairs, Becky O’Connor, said: “Today’s rate rise was expected, but that doesn’t make this bitter pill easier to swallow for millions of mortgage borrowers and renters with housing costs linked to a mortgage.”

The increase will come as a particular blow to retirees who continue to pay mortgages, said Standard Life’s Managing Director for Customer, Dean Butler: “It’s not a 0.5 per cent leap this time but the Bank’s fourteenth rate rise in a row will pile on the pain for the significant minority of retirees and those approaching retirement who still have a mortgage to pay off, particularly if they’re on a variable rate or hold one of the 2.4 million fixed deals set to end before the end of 2024.”

While savers would benefit from the “speed and severity” of rate increases, he said, many retirees and those approaching retirement would fall on the “flipside of rate rises".

“People who were planning to retire in the near future but still have mortgages or other debts face a tricky decision as the cost of borrowing continues to rise,” said Butler.

Faced with high inflation, some argue that the Bank had no choice but to continue with the rate’s upward climb.

Commenting on the decision, LCP’s investment partner Steve Hodder said: “We don't know where inflation would be if the Bank hadn't acted. If anything, stubborn inflation suggests harder action was needed.”

---