The Bank of England has raised its base rate of interest from 3.5% to 4% - the highest in 14 years - in an effort to combat inflation
A higher interest rate will be welcomed by savers, but have a knock-on effect for those with mortgages, credit card debt and bank loans
The 4% rise means people with a typical tracker mortgage will pay about £49 more a month - while those on a variable mortgage will pay another £31 a month
The Bank says the UK is still set to enter recession this year, but this will be shorter than previously thought
The slump is now expected to last just over a year rather than almost two, as energy bills fall and price rises slow
Speaking to the BBC, Andrew Bailey says it's "extraordinary" that the economy isn't expected to rebound to its pre-pandemic size until 2026
Thank you very much for following along the day's events with us. We're closing this page now, but you can read our main story here.
Today's coverage was brought to you by Nick Edser, Sam Hancock, Heather Sharp, Anna Boyd, Charley Adams, Alys Davies, James Harness, Jeremy Gahagan, James FitzGerald, Chris Giles and Andrew Humphrey.
Image source, ReutersIf you're just joining us, or need a recap, here's a roundup of what you've missed.
The BBC's Faisal Islam... sat down with the Bank of England governor Andrew Bailey to talk about the state of the UK economy. He warned about the ongoing impact of "the three big hits": Brexit, the energy crisis and Covid-19. He said it was "extraordinary" that the UK economy was not expected to be back to its pre-pandemic size until 2026.
Their chat came after... it was announced that interest rates would rise by 0.5% to 4% - their highest level for 14 years.
Chancellor Jeremy Hunt... backed the decision, saying the government recognised rising rates were "very difficult for families and businesses" but that things would be harder if steps like this weren't taken "to bring down inflation".
Shadow chancellor Rachel Reeves... said she respected the independence of the Bank but warned that today's increase will "put more pressure on people with mortgages". She added: "The UK is falling behind our peers and neighbours."
Meanwhile, a recession... is due to hit the UK this year, but it'll be shorter and less severe than previously thought, according to the Bank. The slump is now expected to last just over a year rather than almost two, as energy bills fall and price rises slow.
The IFS might have given its welcome to today's news - but other think-tanks feel differently.
The left-of-centre New Economics Foundation (NEF) has described the Bank of England's decision to raise interest rates to 4% as "misguided", external.
It says the rise will do "little to tackle inflation" - but will instead "put a further squeeze on families already struggling to afford life's essentials".
Meanwhile the centre-left think tank, the Institute for Public Policy Research (IPPR), says inflation may have "peaked" but "other lights are flashing red on the economic dashboard", external.
"Tighter financial conditions are hitting the real economy and this week’s dire growth projections show that signs of a soft-landing look doubtful," the IPPR warns.
Inflation is a stealth tax, says Chancellor Jeremy Hunt
Jeremy Hunt says the Bank of England was “very clear” earlier today that "wage pressure is one of the risks" that could keep inflation running high.
The chancellor's remarks come with public-sector pay still the focus of numerous industrial disputes.
The data says what many of us are feeling - these are tough times financially. But as Bank governor Andrew Bailey says, there are signs the economy has turned a corner:
Let's have a short recap.
The Bank of England has been increasing interest rates - as we saw earlier today - to try to stop rising inflation, which means the rate at which prices are increasing.
Inflation is close to a 40-year high. The Bank’s target is to keep it at 2% - but it’s over 10% right now.
That means, in simple terms, that a bottle of milk that cost £1 a year ago now costs £1.10.
So why is inflation so high?
Prices have been going up quickly worldwide, as Covid restrictions eased and consumers spent more. Many firms have problems getting enough goods to sell. And with more buyers chasing too few goods, prices have increased.
There has also been a very sharp rise in oil and gas costs. They were in greater demand as life got back to normal after the arrival of Covid.
At the same time, the war in Ukraine meant fuel less was available from Russia, putting further pressure on energy prices. The war has also reduced the amount of grain available, pushing up food prices.
Image source, .Bernadette McCague and Robert Cuffe
Stu Hennigan has a decent job as a senior librarian, earning a salary that his 30-year-old self would have described as a "jackpot".
But the rising cost of living means he's returned to the skint feelings he remembers from his younger, minimum wage days: using cards to spread unexpected costs like a car repair over a couple of months.
Half that hit came last year as food and fuel bills soared.
But the family's finances took another hit in November when their bank told them what their new mortgage payments would be.
They're now spending nearly a third of all their income on the mortgage.
Despite this, Stu says he still feels they're relatively lucky.
He has written a book, Ghost Signs, about his time delivering food parcels during the pandemic when he witnessed real poverty.
There's plenty of reaction still coming in to this lunchtime's news, including from Paul Johnson, director of the Institute for Fiscal Studies (IFS) think tank.
He says the Bank of England's new UK GDP forecast, external is "a big change in a positive direction".
Looking ahead to Chancellor Jeremy Hunt's next Budget (scheduled for 15 March), he says the "big question" is whether the Office for Budget Responsibility (OBR) will improve its forecast by then.
It's the role of the OBR to check the health of the UK's economy. It's independent of the government.
An improved forecast would give Hunt "more room for manoeuvre," Johnson adds.
Image source, POOLChancellor Jeremy Hunt says that although the government recognises rate rises are “very difficult” for families and businesses, things would be even harder “if we didn’t take decisive steps to bring down inflation”.
“The Bank of England is absolutely right to do what they’ve done today,” he says.
He adds that the government and the Bank have to work together to "kick the inflationary habit", and that this is what he's been trying to do since delivering his Autumn Statement.
Asked about the link between public-sector pay - an issue which has led to strike action - and inflation, Hunt says the Bank is “very clear” that "wage pressure is one of the risks" that could keep inflation running high.
The chancellor says the government will talk to the unions about absolutely anything, “except things that will mean higher inflation is entrenched for longer”.
In his closing remarks, Bailey acknowledges the "extraordinary" projection that the UK economy won't be back to its pre-pandemic size until 2026.
"We may have to conclude that Covid has had bigger long-run effects than we thought it would," he tells the BBC, "particularly in terms of things like the labour supply, and people choosing to come out of participating in the labour force."
Asked if this is unique to the UK, Bailey says the majority of other countries have seen their labour force participation "reverse" since the pandemic ended.
That hasn't happened in the UK, he says, adding this is "unusual".
Next up, Bailey is asked about economic shocks for the UK which have frequently been used to justify moves like today's rise in interest rates.
He says the three big hits - Brexit, energy price rises and Covid-19 - are all being felt at once. But it's hard to "accurately apportion the overall effects between the three," he adds.
He continues, saying the Bank of England has "taken a view for some time that over a rather longer period, we would see a negative effect on productivity from Brexit, because the economy is less open".
Bailey adds: "The evidence would seem to suggest that the total effect may not have got larger but it seems to be coming through faster."
Let's hear more from Bailey's interview with Faisal Islam, the BBC's economics editor.
Responding to public-sector pay demands - which have led to recent strikes - Bailey says it's important that "we don't have wage-settings... which seek to get ahead of inflation" because this could make the issue "more persistent".
Challenged on how pay demands could fuel inflation if wage demands are less than the inflation figure, the governor says he's not going to discuss "individual wage settlements".
But he does say: "There is a risk that as inflation comes down, the path down is not as fast and is interrupted, if we get more domestic price inflation, and that can come from price-setting and wage-setting."
Bank chief Andrew Bailey: 'We think inflation will fall rapidly'
We reported earlier on the Bank of England governor Andrew Bailey's press conference, in which he explained why interest rates have been put up to 4%.
Afterwards, he sat down with the BBC's economics editor, Faisal Islam, to discuss the move further.
The governor is asked whether the UK may be beyond the worst point of this crisis in energy.
He answers: “I very much hope so, but we’ve only just begun to turn the corner in my view, so it’s too early to make that call with any… degree of certainty.”
Inflation appears to be falling, he reiterates, but there are "big risks out there" which could continue to have an impact on the economy.
An earlier version of this post said Andrew Bailey was referring to the economy overall, rather than to the energy crisis.
As we mentioned in our last post, Labour's shadow chancellor has been giving the BBC her reaction to today's interest-rate rise from the Bank of England.
See more from Rachel Reeves by watching the video above.
Some reaction now from Labour's shadow chancellor.
Rachel Reeves says she respects the independence of the Bank of England to make interest rate rises, but today's increase will "put more pressure on people with mortgages".
Reacting to the Bank's forecast that if the UK enters a recession it will be less severe than expected, Reeves says the country's ambition should not be to shrink or grow by just 0.1%.
"The UK is falling behind our peers and neighbours," she says.
"The government needs to get behind British business and workers to seize the opportunities out there".
When asked about Shell's record profits announced today, Reeves says Labour would extend the windfall tax on energy giants and use the money to help people struggling with their energy bills.
Let's have some more political reaction now.
The Scottish National Party has responded to the Bank of England interest rate hike by commenting that Brexit is "devastating to the UK economy."
Referring to its powers more broadly, it says the Scottish Government is "constrained by decisions taken by UK governments" and that it would be "able to do so much more if Rishi Sunak loosened his purse strings".
The Green Party's economy spokesperson Molly Scott Cato has also tweeted criticism following the latest interest rate hike.
She adds that it makes the move "more expensive for businesses to invest" and pushes the UK into a deeper recession. She ends her post saying: "More economic self-harm".
We've got some savings advice from Anna Bowes, co-founder of the Savings Champion advice group.
She says that because interest rates have been rising for well over a year now, "it's made a massive difference to the amount people can earn off their cash savings".
But she warns that High Street banks are "paying some of the worst rates on the markets" - and the Treasury Select Committee "is going to be asking them why".
Giving an example of this, she tells the BBC News Channel that Barclays and Santander are paying 0.55% on their Easy Access accounts - but says that compares to 2.9% elsewhere, adding "it's just appalling."
Her advice going forward is that, where possible, "put anything aside that you can... so you have a bit of a nest egg to fall back on in difficult times".
Image source, PA MediaHouse prices have fallen in recent months, with increased interest rates making mortgages more expensive and high inflation reducing people's spending power.
In turn, that means lower offers and less demand for homes overall.
In November, the Office of Budget Responsibility (OBR), which advises the government on the health of the economy- predicted that house prices will drop by 9% over the next two years.
The UK's largest lender, Lloyds, is planning for an 8% fall in 2023.
But a drop in prices doesn't mean we'll see a crash - after the 2008 financial turmoil, mortgage lending rules were tightened.
As a result, loans should leave more room for prices to fall before borrowers are stuck with negative equity - which means someone's home is worth less than their mortgage.
Most recent borrowers have also had their ability to pay checked against interest rates even higher than the ones we're seeing at the moment.
Image source, Getty ImagesBusiness groups have been reacting to the latest rate rise, with the British Chambers of Commerce (BCC) warning that the Bank of England's "hard-line approach" to defeating inflation is "not without serious side-effects".
“Those impacted most by today’s decision will be mortgage holders and businesses reliant on debt to keep afloat after three years of economic shocks," said David Bharier, the BCC's head of research.
He added that BCC research had found interest rates were of increasing concern for firms.
“With the Bank expecting inflation to slow to around 4% by the end of the year, further rate rises could now simply add to the risk of a deeper recession, outweighing the benefits," Mr Bharier said.
However, the Institute of Directors said the Bank was "right" to raise rates today.
It said its research found only a quarter of directors thought inflation had peaked. Raising rates, it said, "will help establish business expectations of inflation on a firmer downward path, which will itself put downward pressure on prices".
In its report, the Bank of England says seven members of the the Monetary Policy Committee (MPC) voted to increase the base interest rate from 3.5% to 4%.
Two voted to keep it unchanged.
The MPC also softened its language, removing a promise to act "forcefully" to return inflation to its target level.
"Looking further ahead, the MPC would adjust the Bank rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit," the minutes of the meeting say.