Forecasts indicate that the economy will shrink over the next three months and continue to shrink until 2023. As the Bank fights to stop soaring prices, interest rates rose to 1.75 percent.

Andrew Bailey, Governor of the Commonwealth, stated that he was aware that the cost-of-living squeeze is difficult. However, if interest rates are not raised it will get “even worse”.

High inflation and low growth are mainly due to skyrocketing energy costs, which were triggered by Russia’s invasion in Ukraine. According to the Bank, a typical household will pay almost PS300 per month for energy by October.

This recession is expected to be the longest since 2008, when the UK’s banking system collapsed, which brought an end to lending. Although the slump may not be as severe as it was 14 years ago, it could last as long.

Andrew Bailey, the Bank’s governor, said that he felt “huge sympathy” for those who are most affected by high living costs.

“I am sure they will feel that way. Why have you raised interest rates today?” “I’m afraid I can’t answer that question because I fear the alternative is worse in terms persistent inflation.” Inflation can be controlled by increasing interest rates. It raises borrowing costs, and should encourage people not to borrow as much.

Many households, including mortgage-holders, will feel the pinch from an increase in interest rates. Rates have risen to 1.75% and homeowners with a tracker mortgage will now have to pay around PS52 more per month. Standard variable rate mortgage holders will see a PS59 rise.

This means that tracker mortgage holders may pay about PS167 more per month than they did in December 2021. Variable mortgage holders, however, could pay up to PS132 more. Since the end of last year, interest rates have increased six times in a row.

Also, higher interest rates can mean higher fees for things like bank loans, credit cards and car loans. Patrick Reid, a London business owner, owes PS25,000 in credit cards and loans. He fears that an increase in interest rates will lead to him losing his business.

He stated that he currently owes around PS1,800 per month, but that he has calculated that I will need to pay an additional PS250 per month to cover the debts.

“I will just have to tighten up my belt and be more cautious with my spending. This means that all non-essential items will be removed from my budget.” Rebecca McDonald, chief economist of the Joseph Rowntree Foundation said that “staggeringly high” inflation would “hit low-income families hard”.

Many people took out credit to pay their bills, and they are now falling behind in their payments. With higher interest rates, this will be more difficult to repay and put more families in financial danger.