The UK increased interest rates from 0.75% to 1%.

The Bank of England has warned that the UK economy will shrink this year as it raises interest rates to try to stem the pace of rising prices.

Rates rose to 1% from 0.75%, their highest level since 2009 and the fourth consecutive increase since December.

Inflation, at its highest for 30 years, is set to breach 10% by the end of the year, with fuel, energy and food costs soaring partly due to the Ukraine war.

Raising rates makes it more expensive for consumers and businesses to borrow. The idea is that people start spending less, helping cool demand for goods and services and, in turn, slowing the pace of price rises.

But economists have warned that increases in interest rates may have little effect given rising global oil and gas prices.

The Bank’s Monetary Policy Committee (MPC) – which sets rates – also acknowledged there were “risks” but said it would continue to review “incoming data”.

The UK economy is now expected to contract in the final three months of this year. It is also expected to shrink by 0.25% in 2023, down from the Bank’s previous forecast of 1.25% growth.

Nevertheless, the increase means savers are due to get higher interest rates as savings rates are set to rise by another 0.25 percentage points – after already doubling in a year.

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