UK to enter year-long recession as inflation soars past 13pc

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Interest rates help to tame inflation by raising the cost of borrowing across the economy.

This encourages households and businesses to save more and spend less – helping to cool overall demand for goods and services.

However, the Bank highlighted that while many banks had passed on rate rises to people seeking new mortgages, savings rates had failed to keep up. It highlighted that the average instant access account had only increased by 0.3 percentage points since last November, even as Bank Rate had climbed by almost four times as much.

A Bank poll of UK businesses laid bare the challenges facing households this year.

Supermarkets said customers were already trading down to cheaper brands or choosing to shop at discounters like Lidl and Aldi.

Households were also more likely to repair rather than replace items, while many had stopped buying big-ticket items like cars, fridges and TVs.

Others had delayed trips to the dentist, or cancelled subscription services.

While holidays remain a priority for many families who have been unable to get away due to lockdown, many chose budget hotels or cut back on day trips to save on fuel.

The Bank also announced it would start to sell its £863bn stockpile of government debt it amassed during the pandemic and financial crisis.

It plans to reduce the level of built up through quantitative easing (QE) by £80bn over the next year, starting this Autumn. Despite the economic uncertainty, it said there would be a “high bar” to changing these plans.

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