The Bank of England (BoE) has increased the interest rate to 1.75%, the first rise of half a per cent in over 20 years.

The latest increase is the fifth rise since December 2021, with the BoE arguing that it's needed to tackle soaring inflation.

CPI inflation is expected to rise more than expected, from 9.4% in June to just over 13% in Q4 2022. The bank still hopes CPI will fall to the 2% target in 2024.

The bank's monetary policy council (MPC) voted eight to one in favour of the rise.

Andrew Bailey, governor of the BoE, said:

"The real risk we're responding to is that inflation becomes embedded, and it doesn't come down in the way that we would otherwise expect.

"We've had a domestic shock. We've had shrinkage in the labour force over the last two years or so."

Chairman of the Federation of Small Businesses, Martin McTague, said:

"Many commercial, personal and professional loans that small businesses and sole traders hold are not protected by fixed rates and will move in line with the increase.

In a situation where inflation is already putting many small firms in extremely difficult conditions, there is now further concern that these businesses will face higher costs in paying back their loans."

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