If mortgage payers, renters and businesses were feeling the squeeze before today, well now the pips are coming out. 

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 Five per cent is the new interest base rate announced earlier by the Bank of England - the highest it's been for fourteen years. 

That's the pain. The gain? 

According to the bank - reduced inflation and the avoidance of a recession. 

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Are we about to be hit by a mortgage time bomb?

As soaring interest rates undermine the value of our homes, does the British dream of bricks and mortar wealth start to slip away?

That's how it feels for Daniel Hilawe, who's saved carefully for years to own his own place.

In November his fixed term mortgage comes to an end and now he worries he could lose it all.

When I read the letter it wasn't just like £100 or £150 it was literally nearly double, more than double.

You know, with everything else, it's not, you're not just paying that, you've got other bills as well.

I mean, I was like on the phone straight away, like trying to call the banks, my mortgage brokers and figuring out options and no 1 had good news for me.

The Bank of England raised interest rates for a 13th time today to 5% – the highest level since September 2008 and ending an era of rock bottom interest rates.

But despite the peril, the governor pledged to keep going and do whatever it takes to tame inflation.

We're not desiring a recession, but we will do what is necessary to bring inflation down to target.

We cannot continue to have the current level of wage increases

and we can't have companies seeking to rebuild profit margins, which means prices continue to go up at their current rates.

But what I would say to people is we expect inflation to come down and it's important then that price setting and wage setting reflects that because the current levels, I'll be absolutely honest, are unsustainable.

But Daniel says without earning more he simply won't be able to pay the bills.

I feel like I need to get a bigger salary now to be able to be broke even every month so it's definitely a lot trickier now.

I don't know what tomorrow brings, the thing is with me I know I have to.

At the mortgage broker down the road, they've been inundated with calls.

No, don't be stressed, it's absolutely fine.

With the rates being so high, the specialist lenders, which is the market that we work in, with people that have had blips or credit problems in the past, those sort of lenders that were there and could make a good margin, they're starting to realise that there's not a market for them because they can't charge 8-9% interest rates because the clients can't afford it on paper.

2.5 million people will be exposed to higher rates this year.

And the average mortgage is now above 6% from 2.5% in 2021.

Unlike the 1980s, more people are on fixed-term deals, leaving them initially untouched by rate changes.

But critics say this has blunted the bank's effectiveness and meant they've needed a bigger mallet to control the economy.

This is going to heap even more pain on ordinary working families.

The government need to do what only they can do, which is give that instruction to the Financial Conduct Authority to ensure that banks are properly helping customers who at the moment are very, very worried about what these increases in interest rates and mortgage rates mean for them, their families and keeping a roof over their head.

The problem is that lenders are pulling hundreds of mortgage deals and repricing almost on a daily basis.

Now that's nerve-wracking for borrowers, and it raises questions about the future of financial stability.

But banks tell me that so far, they're not seeing customers in distress, and they still have mortgages in the market, albeit at a higher cost.

Of course, the big issue is that after 15 years of free money, no 1 is quite sure how hard this new normal for interest rates is going to hit.

In Kent, the Prime Minister was making big promises.

I'm here to tell you that I am totally 100% on it, and it is going to be OK and we are going to get through this.

Rooting out inflation is not easy, it requires difficult decisions, it doesn't happen overnight, but if we don't get on top of it, it would just get worse and it would last longer and that is not going to do anyone any favours, it is not going to be good for you and your families in the long run and even though it means I have to make some difficult decisions, That is the type of Prime Minister I am.

It is still too early for the political applause.

Staying Prime Minister will not be easy if the housing time bomb detonates on his watch.

It is not just the workers in Kent he met today, the Rishi Sunak needs to reassure about the pressure of rising interest rates.

Many of his own backbenchers are becoming concerned about the effect it will have in their own constituencies.

Our political editor Gary Gibbon is in Westminster.

It is quite hard to find a Tory MP who is not muttering menacing words about the Bank of England and the Governor and the failure to raise interest rates earlier, failure to stop quantitative easing earlier.

What struck you today was listening to the prime minister himself.

That phrase you just heard in Helia's report, I'm 100 percent on it, it was almost as if he was trying to play on what he has often thought was a bond that built up between him and the British people over furlough introduced during Covid, that giant intervention by the state, as he called it.

But, of course, what he's actually saying here is, he's not some great big offer of government spending, which would be sprayed all over the country.

He's actually telling people to stop spending, effectively.

And he's promising no extra government spending because that would cut across monetary policy.

The levers he's actually got to pull are pretty limited.

The lenders themselves are going to be called back in for another chat round table with the Chancellor tomorrow and likewise the regulators on Monday.

Regulators are going to see if there's any sort of core price cut that is not being passed on to people and a lot of the moves that they're making with the lenders.

They've been around the houses so to speak with the mortgage lenders before on all of this.

improvements in some of the things they have already discussed.

But 1 of the biggest things you come away thinking about today is what we knew of the loose choreography towards the election that the government was planning.

Interest rate rises have implications for the government's own borrowing costs.

The margin for trying to do tax cuts, as we know this government was hoping to do.

The margin and the timing of those tax cuts, the possibility of those tax cuts is looking pretty lean tonight.

It is no surprise that when you talk to people inside Downing Street, they say that Rishi Sunak, only a few months in the job, is facing the toughest period right now of his premiership.

Earlier I spoke to the Conservative MP John Barron who sits on the Commons Treasury Select Committee.

I began by asking him what he made of the interest rate rise today.

Well I think it's a case of consumers and householders now paying the price for the Bank of England having been asleep at the wheel when it comes to inflation.

For far too long they've not been as proactive as they should have been in combating inflation by increasing interest rates earlier.

Had they done so, I think there may be less pain on both inflation and interest rates now.

Is that fair given what has happened in the last couple of years?

We've had Covid, the invasion of Ukraine, a Conservative government that lasted 6 weeks and many people said caused chaos.

I mean no 1 could have predicted what we have been through in these last couple of years.

Well many people cite, you know, the bank cites, you know, external shocks, the biggest 1 probably being Ukraine.

But, you know, inflation was 6% plus just before the invasion of Ukraine.

Interest rates were still half a percent.

Given their remit of keeping inflation down to

and below, that was woefully behind the curve.

Specifically about the interest rate rise today, because that is going to have the biggest impact on people already struggling in many instances with the cost of living crisis.

I don't know the statistics all I would say to you is this, interest rate rises normally have a

If the Bank of England is confident – and I'm talking about central banks generally here

but if the Bank of England is confident about its inflation forecast at the year-end, i.e.

perhaps falling, that's their forecast, the OBR is still at 2.9% year-end, then why are they increasing interest rates now given that interest rate rises always have a lag effect?

So, you're questioning whether in fact they should have done this today,

think there's a case for a pause, frankly, because if they are correct, they can't have it both ways, if they are correct that inflation is going to be around 5% by the end of the year and falling, then why are they increasing interest rates now, given that interest rate rises have typically a 12-15 month lag before they affect the real economy.

Are you nervous that on the path that we've been on, you know, the 13th consecutive rise today, that they are headed for making another mistake that will take us into a recession?

I think there's a risk of overkill, yes, unless they know something we don't.

They either believe in their own forecasts that inflation is going to be falling soon or they don't, in which case I think honesty and transparency would be the best policy because at the moment this is causing an awful lot of pain to people.

Consumers and households, they're not just looking at the Bank of England, they are looking to government and they're looking very, very hard at the Prime minister and he has said today, I'm on it, 100%, I've got this.

We have to remember, if I may, that the Bank of England is independent.

It should be independent of any party political persuasion.

All political parties in this country accept it's independent.

I'm afraid this fault when it comes to inflation and interest rates has to be laid firmly at the Bank of England door.

I understand that, of course, but the Prime Minister has made his number 1 priority halving inflation.

All I know is we have a Bank of England that has proven to be, how can I put it, woefully neglectful in its duty?

This undoubtedly could be the biggest issue at the next election.

Could it cost the Conservatives the next election if something dramatic doesn't happen on both fronts?

Well, you can never predict black swan events and dramatic events.

All I would say is we need to do what is right by the country and get this situation sorted.

And I don't want to wish to keep repeating myself, but it does start and finish with the Bank of England, who are rightly independent and have got this badly wrong.

So I'm not suggesting they should predict Black Swan events.

But a month before probably the biggest external shock, they were well behind the curve already.

John Barron, thank you very much for talking to us today.


Speaker 0: Are we about to be hit by a mortgage time bomb? As soaring interest rates undermine the value of our homes, does the British dream of bricks and mortar wealth start to slip away? OK. That's how it feels for Daniel Hilawe, who's saved carefully for years to own his own place. In November his fixed term mortgage comes to an end and now he worries he could lose it all.

Do you want to

Speaker 1: come down and explore? When I read the letter it wasn't just like £100 or £150 it was literally nearly double, more than double. So it went up about 450 pounds. So as soon as I read that, I panicked. I was like, that's mad.

You know, with everything else, it's not, you're not just paying that, you've got other bills as well. I mean, I was like on the phone straight away, like trying to call the banks, my mortgage brokers and figuring out options and no 1 had good news for me.

Speaker 0: The Bank of England raised interest rates for a 13th time today to 5% – the highest level since September 2008 and ending an era of rock bottom interest rates. But despite the peril, the governor pledged to keep going and do whatever it takes to tame inflation.

Speaker 2: We're not desiring a recession, but we will do what is necessary to bring inflation down to target. We cannot continue to have the current level of wage increases

Speaker 3: and we can't have companies seeking to rebuild profit margins, which means prices continue to go up at their current rates.

Speaker 2: But what I would say to people is we expect inflation to come down and it's important then that price setting and wage setting reflects that because the current levels, I'll be absolutely honest, are unsustainable.

Speaker 0: But Daniel says without earning more he simply won't be able to pay the bills.

Speaker 1: I feel like I need to get a bigger salary now to be able to be broke even every month so it's definitely a lot trickier now. I don't know what tomorrow brings, the thing is with me I know I have to.

Speaker 0: At the mortgage broker down the road, they've been inundated with calls. No, don't be stressed, it's absolutely fine. Don't worry, I'll get a... But people are worried.

Speaker 4: With the rates being so high, the specialist lenders, which is the market that we work in, with people that have had blips or credit problems in the past, those sort of lenders that were there and could make a good margin, they're starting to realise that there's not a market for them because they can't charge 8-9% interest rates because the clients can't afford it on paper.

Speaker 0: 2.5 million people will be exposed to higher rates this year. And the average mortgage is now above 6% from 2.5% in 2021. Unlike the 1980s, more people are on fixed-term deals, leaving them initially untouched by rate changes. But critics say this has blunted the bank's effectiveness and meant they've needed a bigger mallet to control the economy.

Speaker 5: This is going to heap even more pain on ordinary working families. The government need to do what only they can do, which is give that instruction to the Financial Conduct Authority to ensure that banks are properly helping customers who at the moment are very, very worried about what these increases in interest rates and mortgage rates mean for them, their families and keeping a roof over their head.

Speaker 0: The problem is that lenders are pulling hundreds of mortgage deals and repricing almost on a daily basis. Now that's nerve-wracking for borrowers, and it raises questions about the future of financial stability. But banks tell me that so far, they're not seeing customers in distress, and they still have mortgages in the market, albeit at a higher cost. Of course, the big issue is that after 15 years of free money, no 1 is quite sure how hard this new normal for interest rates is going to hit.

Speaker 6: Hi, everyone. How are you?

Speaker 0: In Kent, the Prime Minister was making big promises.

Speaker 6: I'm here to tell you that I am totally 100% on it, and it is going to be OK and we are going to get through this.

Speaker 0: His audience seemed less convinced.

Speaker 6: Rooting out inflation is not easy, it requires difficult decisions, it doesn't happen overnight, but if we don't get on top of it, it would just get worse and it would last longer and that is not going to do anyone any favours, it is not going to be good for you and your families in the long run and even though it means I have to make some difficult decisions, That is the type of Prime Minister I am.

Speaker 0: It is still too early for the political applause. Staying Prime Minister will not be easy if the housing time bomb detonates on his watch.

Speaker 7: It is not just the workers in Kent he met today, the Rishi Sunak needs to reassure about the pressure of rising interest rates. Many of his own backbenchers are becoming concerned about the effect it will have in their own constituencies. Our political editor Gary Gibbon is in Westminster.

Speaker 8: It is quite hard to find a Tory MP who is not muttering menacing words about the Bank of England and the Governor and the failure to raise interest rates earlier, failure to stop quantitative easing earlier. What struck you today was listening to the prime minister himself. That phrase you just heard in Helia's report, I'm 100 percent on it, it was almost as if he was trying to play on what he has often thought was a bond that built up between him and the British people over furlough introduced during Covid, that giant intervention by the state, as he called it. But, of course, what he's actually saying here is, he's not some great big offer of government spending, which would be sprayed all over the country. He's actually telling people to stop spending, effectively.

And he's promising no extra government spending because that would cut across monetary policy. The levers he's actually got to pull are pretty limited. The lenders themselves are going to be called back in for another chat round table with the Chancellor tomorrow and likewise the regulators on Monday. Regulators are going to see if there's any sort of core price cut that is not being passed on to people and a lot of the moves that they're making with the lenders. They've been around the houses so to speak with the mortgage lenders before on all of this.

They are just

Speaker 1: seeing if they can make

Speaker 8: improvements in some of the things they have already discussed. But 1 of the biggest things you come away thinking about today is what we knew of the loose choreography towards the election that the government was planning. Interest rate rises have implications for the government's own borrowing costs. The margin for trying to do tax cuts, as we know this government was hoping to do. The margin and the timing of those tax cuts, the possibility of those tax cuts is looking pretty lean tonight.

It is no surprise that when you talk to people inside Downing Street, they say that Rishi Sunak, only a few months in the job, is facing the toughest period right now of his premiership.

Speaker 7: Gary, thanks very much. Earlier I spoke to the Conservative MP John Barron who sits on the Commons Treasury Select Committee. I began by asking him what he made of the interest rate rise today.

Speaker 9: Well I think it's a case of consumers and householders now paying the price for the Bank of England having been asleep at the wheel when it comes to inflation. For far too long they've not been as proactive as they should have been in combating inflation by increasing interest rates earlier. Had they done so, I think there may be less pain on both inflation and interest rates now.

Speaker 7: Is that fair given what has happened in the last couple of years? We've had Covid, the invasion of Ukraine, a Conservative government that lasted 6 weeks and many people said caused chaos. I mean no 1 could have predicted what we have been through in these last couple of years.

Speaker 9: Well many people cite, you know, the bank cites, you know, external shocks, the biggest 1 probably being Ukraine. But, you know, inflation was 6% plus just before the invasion of Ukraine. Interest rates were still half a percent. Given their remit of keeping inflation down to

Speaker 0: 2%

Speaker 9: and below, that was woefully behind the curve.

Speaker 7: Specifically about the interest rate rise today, because that is going to have the biggest impact on people already struggling in many instances with the cost of living crisis. Was it the right thing to do?

Speaker 9: I don't know the statistics all I would say to you is this, interest rate rises normally have a

Speaker 0: 12, 15,

Speaker 9: maybe 18 month lag. If the Bank of England is confident – and I'm talking about central banks generally here

Speaker 0: –

Speaker 9: but if the Bank of England is confident about its inflation forecast at the year-end, i.e. Being around

Speaker 0: 5%,

Speaker 9: perhaps falling, that's their forecast, the OBR is still at 2.9% year-end, then why are they increasing interest rates now given that interest rate rises always have a lag effect?

Speaker 7: So, you're questioning whether in fact they should have done this today,

Speaker 1: just to be clear?

Speaker 7: I

Speaker 9: think there's a case for a pause, frankly, because if they are correct, they can't have it both ways, if they are correct that inflation is going to be around 5% by the end of the year and falling, then why are they increasing interest rates now, given that interest rate rises have typically a 12-15 month lag before they affect the real economy.

Speaker 7: Are you nervous that on the path that we've been on, you know, the 13th consecutive rise today, that they are headed for making another mistake that will take us into a recession?

Speaker 9: I think there's a risk of overkill, yes, unless they know something we don't. They either believe in their own forecasts that inflation is going to be falling soon or they don't, in which case I think honesty and transparency would be the best policy because at the moment this is causing an awful lot of pain to people.

Speaker 7: Consumers and households, they're not just looking at the Bank of England, they are looking to government and they're looking very, very hard at the Prime minister and he has said today, I'm on it, 100%, I've got this. Should they believe he does have this?

Speaker 9: We have to remember, if I may, that the Bank of England is independent. It should be independent of any party political persuasion. All political parties in this country accept it's independent. I'm afraid this fault when it comes to inflation and interest rates has to be laid firmly at the Bank of England door.

Speaker 7: I understand that, of course, but the Prime Minister has made his number 1 priority halving inflation. Will he come to regret that?

Speaker 9: Time will tell. All I know is we have a Bank of England that has proven to be, how can I put it, woefully neglectful in its duty?

Speaker 7: This undoubtedly could be the biggest issue at the next election. Could it cost the Conservatives the next election if something dramatic doesn't happen on both fronts?

Speaker 9: Well, you can never predict black swan events and dramatic events. All I would say is we need to do what is right by the country and get this situation sorted. And it starts and finishes, I'm afraid. And I don't want to wish to keep repeating myself, but it does start and finish with the Bank of England, who are rightly independent and have got this badly wrong. So I'm not suggesting they should predict Black Swan events.

Who can? But a month before probably the biggest external shock, they were well behind the curve already.

Speaker 7: John Barron, thank you very much for talking to us today.

Speaker 9: Thank you.

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UK economy: will latest interest rate hike actually curb inflation?