Experts have said that the Bank of England will be left with few "easy choices" as the UK economy deteriorates.

Yael Selfin, chief economist at KPMG UK said that a potential new spike in the soaring cost of living could come when the government support on energy bills offered under the Energy Price Guarantee comes to an end in April.

That could put pressure on the Monetary Policy Committee to raise rates even more quickly, she said.

“At the same time, the outlook is riddled by the evolution of energy prices, while the risk of a significant fall in house prices looms in the background."

She said that the UK economy could shrink by more than 2% by the end of next year. Although it would ease pressures pushing prices up, it would see households and businesses face even more difficulties.

Image source, PA Media

Some reaction to bring you now from the Labour Party.

Leader Sir Keir Starmer has told Times Radio the increase in interest reates will make people's financial positions "much, much harder".

Shadow chancellor Rachel Reeves has echoed Sir Keir's criticism of the government and says it is for Rishi Sunak to "face up to his mistakes".

"Today's recession warning lays bare how 12 years of Tory government has weakened the foundations of our economy," Reeves adds.

Image source, Reuters

The UK's Chancellor Jeremy Hunt has reponded to the Bank of England's decision to raise interest rates.

He said: "Inflation is the enemy and is weighing heavily on families, pensioners and businesses across the country.

"That is why this government’s number one priority is to grip inflation, and today the Bank has taken action in line with their objective to return inflation to target.

“Interest rates are rising across the world as countries manage rising prices largely driven by the Covid-19 pandemic and Putin’s invasion of Ukraine.

“The most important thing the British government can do right now is to restore stability, sort out our public finances, and get debt falling so that interest rate rises are kept as low as possible."

He added: “Sound money and a stable economy are the best ways to deliver lower mortgage rates, more jobs and long-term growth. However, there are no easy options and we will need to take difficult decisions on tax and spending to get there.”

It is a detailed report by the Bank of England, so let's bring you a little bit more.

The Bank says says further interest rate hikes could be required to tame runaway inflation.

All but two members of the Monetary Policy Committee voted to push up interest rates by 0.75 percentage points this morning, from 2.25% to 3%.

While further hikes could be necessary to pull inflation back to its 2% target, the peak rate will be lower than what financial markets currently expect, the Bank adds.

The pound fell after the Bank of England's interest rate announcement and recession warning.

Sterling dropped 1.4% to 1.123 against the US dollar and was 0.8% lower against the euro at 1.15.

Dearbail Jordan
Business reporter

In its economic forecast that accompanies its rates decision, the Bank of England has warned that the UK is facing its longest recession since the great depression - a century ago.

It says that a downturn will likely last for two years and that the unemployment rate will nearly double.

The Bank had previously expected the UK to fall into recession at the end of this year and it would last for the entirety of 2023.

It now forecasts that the UK economy already entered a downturn in the summer, which will continue for next year and into the first half of 2024 – a possible general election year.

While it will not be the UK’s deepest downturn, it will be the longest since records began in the 1920s.

Inflation, which hit 10.1% in September, is expected to peak at 11% this winter before falling next year.

The 0.75 percentage points increase from 2.25% to 3% means a £73.49 monthly rise for the average tracker mortgage, and £46.22 for the average standard variable rate (SVR) mortgage.

Since December, when the base rate was 0.1%, the average monthly mortgage payment has increased £284.17 for the average tracker, and £178.70 for the average SVR.

You can use our calculator to see how increasing rates could affect your mortgage.

The Bank of England's decision means its benchmark interest rates have hit 3% for the first time since November 2008, in the midst of the financial crisis.

Before the economic downturn, the rate for much of the 2000s varied between 3.5 and 6%.

But between July 2007 and March 2009, the Bank's Monetary Policy Committee drastically lowered these rates from 5.75% to 0.5% in response to the crash - and they would remain below 1% until May this year.

Today's rise by the Bank of England means it is the eighth consecutive increase in interest rates

It is the first rates decision since Liz Truss and Kwasi Kwarteng announced their mini-budget which caused turmoil on the financial markets and mortgage rates to soar.

As well as affecting mortgages and savings accounts, interest rates also influence the interest charged on things like credit cards, bank loans and car loans.

Following today's decision, lenders could decide to increase these fees if interest rates rise again.

As anticipated, the Bank of England has raised interest rates by 0.75 percentage points to 3%.

It is the biggest single rise in the cost of borrowing since 1989.

We're expecting the Bank of England to reveal its interest rate rise at 12:00.

We'll let you know by how much just as soon as we know it ourselves.

Image source, PA Media

A lot can happen in a few weeks - the last time the Bank of England tweaked interest rates was six weeks ago on 22 September, when they went up by half a percentage point to 2.25%

The pound fell against the US dollar following the Bank's announcement but just a day later former chancellor Kwasi Kwarteng's delivered his ill fated mini-budget which caused significant economic turmoil.

Mr Kwarteng was sacked as chancellor on 14 October and replaced by Jeremy Hunt but it wasn't long before his then boss, Liz Truss, also exited front-line politics - she left office on 20 October after just 45 days in office.

Prime Minister Rishi Sunak has promised a new plan to repair the nation's finances later this month but tax rises and spending cuts are expected.

Watch: Jeremy Hunt sets out his plans for the Autumn Statement on 17 November.

Navtej Johal
BBC News Midlands correspondent

I've been speaking to music venue director Jay Dean about his mortgage payments and he's angry his fixed rate is set to triple - from 1.89% to 5.8%. The rise means he has to find an extra £150 a month.

"I'm angry about it because this really shouldn't be happening," the 49-year-old, who lives in Derby, says. "It's unsustainable. It's going to plunge a lot of people into poverty.

"This is a situation that has been caused by the ineptitude of the government, it is so frustrating."

Jay says he will have to think twice about doing a lot of the things he enjoys to find the extra money when his mortgage renews early next year.

"Socialising, going to the pub, gigs, cinema, things that cost a bit of money and mount up over the month... am I going to be able to afford those?"

And it's not just Jay. He tells me a lot of musicians who use his studios can't afford to get on the property ladder because they can't get a deposit together.

"This was happening before the rise in inflation so I feel sorry for the younger generation," he adds.

Kevin Peachey
Cost of living correspondent

The grim reality is that when people’s finances are squeezed they become more vulnerable to scams.

So, on the day that squeeze is likely to be tightened, National Trading Standards is warning about the latest risks.

It says the number of energy scams targeting people on the phone is up 85%, and that losing just £100 to a scam would push nearly a quarter of UK adults into financial difficulty.

Charities stress that anyone can be tricked by fraudsters and it is vital that victims overcome any kind of embarrassment they may feel, report the crime, and seek help.

With predictions of a further interest rate rise, there are worries about the knock-on effect on mortgages and rents.

Sally Mitchell, an adviser at The Mortgage Mum. says it might not be all bad news.

"I'm cautiously optimistic. I think in 2023 we will be looking at between 4% and 5% rates. At the moment I'm looking at 6% to 7%.

"The property market is really resilient. I think, although the Bank of England base rate will probably go up, maybe a couple of times, the mortgage rates won't necessarily follow as strongly."

Sally says when looking at mortgage deals a couple of weeks ago she was looking at 6.5% as a standard for 75% loan to value rate as the cheapest. But since then she says she's seen one at around 5.59%.

"So we're going in the right direction and faster than I thought we would. I'm very pleased. I'm cautiously optimistic that the downward trend will continue."

We're anticipating the Bank of England will raise interest rates by 0.75 percentage points to 3%, the biggest single rise in the cost of borrowing since 1989.

The rationale behind the recent rate hikes are to combat soaring inflation rates, with the annual rate of price rises currently running at 10.1% in the UK.

But with the cost of living crisis a global issue, what is the picture elsewhere?

In the US, the Federal Reserve has been ahead of the curve with rising rates - having hiked their benchmark lending rate by 0.75 points to 3.75- 4%, a range that is the highest since January 2008.

The Fed (as the central bank is known) has been aggressively lifting interest rates for months, with the latest US inflation rates recorded at 8.2% - down from a peak of 9.1% in September.

In the EU, the picture is more complex with the European Central Bank (ECB) setting three separate interest rates for different types of borrowing - all of which were also lifted by 0.75 basis points last week:

• the key deposit rate - how much interest it pays on deposits - rose to 1.5%
• the main refinancing rate - how much banks have to pay when they borrow money from the ECB for a week - to 2%
• the marginal lending facility - how much banks have to pay when they borrow money overnight - to 2.25%.

Euro area inflation is expected to be 10.7 % in October, up from 9.9 % the month before, but there is a lot of variance in the rate prices are rising within the countries which use the shared currency.

Image source, PA Media

A lot has happened since the last Bank of England monetary policy meeting in September, external.

It was six weeks ago, the day before the mini-budget was introduced by Kwasi Kwarteng and now we have a different chancellor and prime minister at the helm.

The Bank of England's former deputy governor believes rates could continue to rise for some time, but damage caused by September's mini-budget has eased.

Sir Charlie Bean said: "The mini-budget has been two-thirds reversed by Jeremy Hunt's decisions since he has come in, and on top of that we have also seen turmoil in the financial markets unwind."

Sir Charlie adds that the key uncertainty affecting how the economy will evolve in the next year depends on what happens in Ukraine and global energy prices.

Dearbail Jordan
Business reporter

Image source, Getty Images

I’m writing this post just before entering the Bank of England and being locked in its basement.

If that sounds ominous, don’t worry. On the day when the Bank announces its interest rate decision, journalists are invited into a secure room within the depths of Threadneedle Street.

Inside, we get an advance look at the decision before it is announced at midday. It means we can quickly get the news out to you as soon as the clock strikes 12.

Today is also important because the Bank publishes a report on how it expects the economy to fare over the coming months – and the outlook is expected to be pretty dire.

Is it glamorous? Not really. Think subterranean corridors with a touch of 1970s school décor. But is it exciting? Most definitely.

Kevin Peachey
Cost of living correspondent

Renters could find it more difficult to find properties in the next year or two as landlords struggle with higher mortgage rates, an expert told MPs yesterday.

Ray Boulger, from mortgage broker John Charcol, said landlords would be more reluctant to buy "buy-to-let" properties which could have a "serious impact" on the availability of homes.

He told the Commons Treasury Committee, who have been hearing from mortgage experts, the situation was particularly acute in London and South East England.

New fixed-rate mortgages have risen sharply in cost during the year, and jumped in the aftermath of the mini-budget, when investors were spooked by big tax cut pledges that were set out without specifying how they would be paid for.

Image source, .

About 40% of landlords have a mortgage on their rental properties.

Boulger said that the buy-to-let sector was likely to see more "stress" than other areas of the mortgage market, adding that some landlords would find it difficult in some areas to secure a mortgage of more than 50% or 60% of a property's value.

That, added to tax changes which have led some landlords to consider selling up, would reduce availability for tenants, he said.

Shouvik Datta, 53, has been renting in Eltham, south-east London, since January 2016.

He pays £900 a month for a one bedroom apartment but says his income isn’t enough to cover the rent.

Shouvik says he relies on Universal Credit and his mother to pay the bills, but says: “Universal Credit is variable and you’re never sure how much will be paid.”

He also says he is in arrears and backs London Mayor Sadiq Khan’s call for rent freezes, external in the capital.

“My landlord has taken action against me before but fortunately that’s been called off,” Shouvik adds.