UK interest rates raised to 1.25% by Bank of England

UK interest rates have risen further as the Bank of England attempts to stem the pace of rising prices.

Rates have increased from 1% to 1.25%, the fifth consecutive rise, pushing them to the highest level in 13 years.

It comes as finances are being squeezed by the rising cost of living, driven by record fuel and energy prices.

Inflation - the rate at which prices rise - is currently at a 40-year high of 9%, and Bank warned it could surpass 11% later this year.

The Bank said rising energy prices are expected to drive living costs even higher in October, but it said it would "act forcefully" if necessary should inflation pressures persist.

Six of the nine members of the Bank's Monetary Policy Committee voted to raise rates to 1.25%, but three backed a bigger increase to 1.5%.

Minutes from the Bank's meeting also reveal that it expects the UK economy will shrink by 0.3% in the April-to-June period.

The Bank did not update its outlook for the third quarter but has previously said it expects GDP to grow between July and September. This would mean that the UK would avoid a recession this year - with a recession defined as the economy shrinking for two consecutive quarters.

However, the Bank has previously said it expects the economy to shrink in the final three months of this year, during which the price cap on household energy bills is set to be increased.

The rise in domestic gas and electricity bills will lift the increase in the cost of living to "slightly above" 11% in October, the Bank said.

It means the rate of inflation will be more than five times the Bank's inflation target of 2%.

In a letter to Chancellor Rishi Sunak, the Bank's governor, Andrew Bailey, said inflation was largely due to global issues such as rising prices for energy and agricultural goods, which have worsened as a result of Russia's war with Ukraine.