The Bank of England (BoE) raised interest rates by 0.5 per cent in the biggest rise since 2008, as it forecast a 0.1 per cent drop in GDP over the current quarter, signalling that the UK is already in recession.
The BoE base rate is now 2.25 per cent – up from 1.75 per cent when the rate was last raised in August, and is the seventh time in a row the base rate has increased, with further increases forecast later in the year, possibly as high as 3 per cent by the end of the year.
The decision to raise rates is an effort by the Bank to bid to tackle inflation – or rising prices. The Bank, which is independent of the government, has a target of keeping inflation below 2 per cent.
However, inflation and rising energy costs, is currently running at 9.9 per cent and expected to rise even further forcing the bank to act.
UKHospitality CEO, Kate Nicholls, said: “The rise in interest rates, while widely expected, has a two-pronged negative impact on an already struggling hospitality sector. It will simultaneously diminish discretionary spend for consumers while making borrowing more expensive, exacerbating the already challenging trading environment for our businesses. This underlines the acute need for further support for the industry, in the form of business rates reliefs and reduced rates of VAT to spur recovery in a vital sector upon which millions of jobs depend.”