Warning of economic downturn as interest rates rise

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The Bank of England has warned the UK faces a "sharp economic slowdown" this year as it raises interest rates to try to stem the pace of rising prices.

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Rates rose to 1% from 0.75%, their highest level since 2009 and the fourth consecutive increase since December.

Inflation - the rate at which prices rise - is at a 30-year high and set to hit 10% by the autumn as the Ukraine war drives up fuel and energy prices.

As a result, households are reining in their spending which is hitting growth.

Following the latest rise in interest rates, two million homeowners will see an immediate increase in their monthly mortgage repayments with other loans potentially getting more expensive too.

But Bank of England governor Andrew Bailey defended raising rates at a time when the cost of living is increasing, saying that the risk of letting inflation get out of control was higher.

Inflation reached 7% in March - more than three times the Bank's target of 2%.

"We are in a very difficult position at the moment," Mr Bailey told the BBC.

"We're walking a very narrow path now between inflation on the one side, which is much higher than we want it to be, and on the other side very big external shocks which are causing a big loss of real income for people and businesses in this country."

As a result of the soaring prices, the Bank's Monetary Policy Committee (MPC) - which sets rates - said there had been "a material deterioration in the outlook" for UK economic growth.

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