BANK OF ENGLAND RAISES INTEREST RATES TO 3%, LARGEST JUMP IN 33 YEARS

Last updated: June 20, 2025, 00:05 | Written by: Brian Kelly

The Bank of England (BoE) has taken a bold step to combat soaring inflation, announcing a significant increase in UK interest rates. At its meeting ending on, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points, to 3%. One member preferred to increase Bank Rate by 0.5 percentage points, to 2.75%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2.5%.In a move that hasn't been seen in over three decades, the central bank has raised interest rates by a substantial 0.75 percentage points, bringing the base rate to 3%.This marks the largest single hike since 1989, a decision driven by the urgent need to tackle persistently high inflation rates plaguing the UK economy. The Bank of England, effectively the United Kingdom s version of the Federal Reserve, has raised interest rates by the highest rate in 33 years. The Bank of England s bank rate, or the cost ofFinancial markets had largely anticipated this aggressive move, recognizing the severity of the inflationary pressures. Bank of England raises interest rates to 3%, largest jump in 33 yearsHowever, the magnitude of the increase underscores the BoE's commitment to bringing inflation under control, even amidst growing concerns about a potential recession.This decision, while aimed at stabilizing the economy in the long run, is likely to have immediate and significant repercussions for businesses, homeowners, and consumers across the United Kingdom.

This decisive action by the Bank of England, often considered the UK's equivalent to the Federal Reserve in the United States, highlights the challenging economic landscape facing the nation. This represents the biggest interest rate in 33 years as the financial Bank of England raises interest rates to 3% to the BoE's 0.75 percent interest rate hike, the biggest hike for 33yrs.The Monetary Policy Committee (MPC) voted in favor of this increase, albeit not unanimously, reflecting the complex considerations and differing opinions within the central bank regarding the best course of action.The question now is whether this aggressive rate hike will be enough to curb inflation without triggering a deep and prolonged recession, and what the implications will be for the average Briton's financial well-being.

Understanding the Bank of England's Decision

The decision to raise interest rates to 3% wasn't taken lightly. The Bank of England raised interest rates in the U.K. to their highest level in 15 years Thursday as the central bank tries to bring some of Western Europe s stickiest inflation to bear.The Bank of England's primary mandate is to maintain price stability, which essentially means keeping inflation at a target level of 2%.With inflation currently far exceeding this target, the BoE felt compelled to take decisive action, even if it means potentially slowing down economic growth.

Factors Driving the Interest Rate Hike

Several key factors contributed to the Bank of England's decision:

Soaring Inflation: Inflation in the UK has been stubbornly high, driven by global factors such as rising energy prices and supply chain disruptions, as well as domestic factors like strong demand and a tight labor market.
Need to Anchor Inflation Expectations: The BoE wants to prevent inflation from becoming entrenched in people's expectations. Desperate times call for desperate measures. The Bank of England, effectively the United Kingdom s version of the Federal Reserve, has raised interest rates by the highest rate in 33 years.The Bank of England s bank rate, or the cost of borrowing money, rose by 0.75% to 3%. According to the MonetarIf individuals and businesses expect prices to continue rising, they may demand higher wages and raise their own prices, leading to a self-fulfilling prophecy of continued inflation.
Global Interest Rate Trends: Central banks around the world are also raising interest rates to combat inflation. The Bank of England raises interest rates by 0.75 percentage points to 3% - the biggest hike since 2025. It also forecasts that the UK is facing a very challenging two-year recession - whichThe BoE doesn't want to fall too far behind, as this could weaken the pound and further fuel inflation.

The Monetary Policy Committee's Vote

It's important to note that the decision to raise interest rates wasn't unanimous. At its meeting ending on, the MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25%. Five members voted to raise Bank Rate by 0.5 percentage points, three members preferred to increase Bank Rate by 0.75 percentage points, to 2.5%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2%.The Monetary Policy Committee (MPC) voted 7-2 in favor of the 0.75 percentage point increase. The Bank of England raised interest rates by three quarters of a percentage point on Thursday, the biggest hike in 33 years, as it tries to contain soaring inflation even as the UK economy slidesThis highlights the ongoing debate within the BoE about the appropriate level of tightening and the potential risks to the economy.

As the meeting ending on, the MPC voted by a majority of 7-2 to increase Bank Rate by 0.75 percentage points, to 3%. The Bank of England has announced it will raise interest rates by 0.75 percentage points to 3% despite worries that higher interest rates could be harmful toOne member preferred to increase Bank Rate by 0.5 percentage points, to 2.75%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2.5%.

By contrast, at its meeting ending on, the MPC voted to increase Bank Rate by 0.5 percentage points, to 2.25%.Five members voted to raise Bank Rate by 0.5 percentage points, three members preferred to increase Bank Rate by 0.75 percentage points, to 2.5%, and one member preferred to increase Bank Rate by 0.25 percentage points, to 2%.

Impact on the UK Economy and Consumers

The Bank of England's interest rate hike will have a wide-ranging impact on the UK economy and consumers. Nevertheless, earlier this month, Bank of England Governor Andrew Bailey said it was likely the hike in interest rates could be bigger than the 0.5 percentage point increase to 2.25% seen at theIt's crucial to understand these effects to prepare for the changes ahead.

Mortgages and Borrowing Costs

One of the most immediate impacts will be on mortgage rates. The Bank of England (BoE) is set to increase UK interest rates by 75 basis points on Thursday, its biggest hike in 33 years. Financial markets are anticipating the record rise, the size which has not been seen since 2025, as the central bank battles soaring inflation. A 0.75% rise will bring the BoE base rate to 3%.For homeowners with variable-rate mortgages, their monthly payments will likely increase.New mortgages will also become more expensive, potentially cooling down the housing market.

For example, imagine a homeowner with a £200,000 variable-rate mortgage.A 0.75 percentage point increase could add hundreds of pounds to their monthly payments.This increased cost of borrowing will impact household budgets significantly.

Furthermore, credit card interest rates and other forms of borrowing will also rise, making it more expensive for consumers and businesses to take out loans.This could dampen consumer spending and investment.

Savings and Investments

On the flip side, higher interest rates can be beneficial for savers.Banks may offer better interest rates on savings accounts, providing a higher return on deposits.However, it's important to note that the increase in savings rates may not fully keep pace with inflation, meaning that the real value of savings could still erode over time.

The stock market could also be affected.Higher interest rates can make bonds more attractive to investors, potentially leading to a shift away from stocks.This could result in volatility in the stock market.

Business Investment and Economic Growth

The interest rate increase will also impact businesses.Higher borrowing costs could discourage businesses from investing in new projects and expanding their operations.This could lead to slower economic growth and potentially even a recession.

The Bank of England also forecasts that the UK is facing a very challenging two-year recession.

However, the BoE hopes that by curbing inflation, it can create a more stable economic environment in the long run, which would ultimately benefit businesses and consumers.

Is the UK Heading Towards a Recession?

The elephant in the room is the looming possibility of a recession.Raising interest rates can cool down the economy, but it also carries the risk of pushing it into a contraction.

The Recession Risk

Many economists believe that the UK is already on the brink of, or potentially already in, a recession.The combination of high inflation, rising interest rates, and global economic headwinds is creating a challenging environment for businesses and consumers.

A recession is typically defined as two consecutive quarters of negative economic growth.While the UK economy has shown some resilience, the impact of the interest rate hike and other factors could push it into negative territory.

Arguments For and Against a Recession

There are arguments both for and against a recession:

Arguments for a recession: High inflation is eroding consumer spending power, businesses are facing rising costs, and global economic growth is slowing down.
Arguments against a recession: The UK labor market remains relatively strong, and the government may introduce fiscal measures to support the economy.

Navigating the Potential Recession

If the UK does enter a recession, it's important for individuals and businesses to take steps to mitigate the impact:

Individuals: Review your budget, reduce unnecessary spending, and build up an emergency fund.
Businesses: Control costs, improve efficiency, and focus on retaining customers.

How to Prepare for Higher Interest Rates

Regardless of whether a recession materializes, it's prudent to prepare for a period of higher interest rates.Here are some practical tips:

Managing Your Debt

If you have outstanding debt, it's crucial to manage it effectively.Consider the following:

Prioritize high-interest debt: Focus on paying down credit card debt and other high-interest loans as quickly as possible.
Consider debt consolidation: If you have multiple debts, you may be able to consolidate them into a single loan with a lower interest rate.
Shop around for better interest rates: Don't be afraid to negotiate with your lenders or explore alternative options.

Budgeting and Saving

Creating a budget and sticking to it is essential in a higher interest rate environment.This will help you track your spending, identify areas where you can save money, and build up an emergency fund.

Track your expenses: Use a budgeting app or spreadsheet to monitor your income and expenses.
Set financial goals: Determine your short-term and long-term financial goals, such as saving for a down payment on a house or retirement.
Automate your savings: Set up automatic transfers from your checking account to your savings account each month.

Investing Wisely

While higher interest rates can make bonds more attractive, it's still important to diversify your investment portfolio.Consider the following:

Consult with a financial advisor: A financial advisor can help you develop an investment strategy that aligns with your risk tolerance and financial goals.
Diversify your portfolio: Don't put all your eggs in one basket.Invest in a mix of stocks, bonds, and other assets.
Think long-term: Don't make impulsive investment decisions based on short-term market fluctuations.

The Global Context of Interest Rate Hikes

The Bank of England isn't alone in raising interest rates.Central banks around the world are grappling with similar inflationary pressures and are taking similar actions.

Global Inflation and Central Bank Responses

The surge in global inflation has been driven by a combination of factors, including supply chain disruptions, rising energy prices, and strong demand following the pandemic.

In response, central banks such as the Federal Reserve in the United States, the European Central Bank, and the Bank of Canada have all been raising interest rates aggressively.

Impact on the UK

The global context is important because it affects the UK economy in several ways:

Imported inflation: Rising prices in other countries can lead to higher import costs for the UK, further fueling domestic inflation.
Exchange rates: Interest rate differentials between countries can affect exchange rates.If the UK raises interest rates more aggressively than other countries, the pound could strengthen, making UK exports more expensive.
Global economic growth: A slowdown in global economic growth can dampen demand for UK exports.

Frequently Asked Questions (FAQs)

Why did the Bank of England raise interest rates so aggressively?

The Bank of England raised interest rates aggressively to combat persistently high inflation, which is currently far above its 2% target.The central bank wants to anchor inflation expectations and prevent prices from spiraling out of control.

How will this affect my mortgage?

If you have a variable-rate mortgage, your monthly payments will likely increase.New mortgages will also become more expensive.Consider reviewing your mortgage options and exploring fixed-rate mortgages to gain more certainty over your payments.

Will this lead to a recession?

The interest rate hike increases the risk of a recession, but it's not guaranteed.The Bank of England hopes that by curbing inflation, it can create a more stable economic environment in the long run.However, many economists believe the UK is already facing a high risk of recession.

What can I do to prepare for higher interest rates?

Manage your debt, create a budget, save more money, and invest wisely.Consult with a financial advisor for personalized advice.

Is the UK the only country raising interest rates?

No, central banks around the world are raising interest rates to combat inflation.This is a global phenomenon.

Conclusion: Navigating the New Economic Landscape

The Bank of England's decision to raise interest rates by 0.75 percentage points to 3%, the largest jump in 33 years, marks a significant turning point for the UK economy.While the move is aimed at tackling soaring inflation and stabilizing prices in the long run, it also brings potential challenges, including higher borrowing costs, a slowdown in economic growth, and an increased risk of recession.

For individuals and businesses, it's crucial to adapt to this new economic landscape.By managing debt effectively, creating a budget, saving more money, and investing wisely, you can navigate the challenges and position yourself for future success.Remember to seek professional financial advice to tailor your strategies to your specific circumstances.

The Bank of England's interest rate decision is a reminder that economic conditions can change rapidly.Staying informed, being proactive, and making sound financial decisions are essential for weathering the storm and achieving your long-term financial goals.In summary, the key takeaways are:

Inflation is the primary concern: The BoE is prioritizing bringing inflation under control.
Higher borrowing costs are here: Prepare for increased mortgage rates and loan repayments.
Recession risk is elevated: Be prepared for potential economic challenges.
Adapt and plan: Take proactive steps to manage your finances.

By understanding the implications of the interest rate hike and taking appropriate action, you can protect your financial well-being and navigate the evolving economic landscape with greater confidence.