UK's Sunak admits higher rates are 'hard' but vows to fight inflation

Prime Minister Rishi Sunak has admitted soaring interest rates are "hard" for cash-strapped Britons, but vowed the government will "remain steadfast" in the battle to curb inflation after the Bank of England delivered a shock hike to 5%.

The bank unexpectedly pushed up interest rates by half a percentage point to the highest level in almost 15 years, with policymakers and the UK government coming under mounting pressure to control the cost-of-living crisis.

The move is set to deepen the mortgage crisis as borrowing costs are hiked up for the 13th time in a row.

Speaking at the Times chief executive summit in London, the prime minister said: "The reason interest rates are going up is because inflation is too high and we've got to bring it down.

"This is something that makes everybody poorer, that's what inflation does.

"That's why we've got to grip it, we've got to reduce it and interest rates are a part of that.

"Now, I always said this would be hard and clearly it's got harder over the past few months but it's important that we do do that.

"The government is going to remain steadfast in its course and stick to its plan to do that."

The 0.5 percentage point increase from 4.5% to 5% was the sharpest increase since February, surprising economists who had been expecting a smaller hike of 0.25 percentage points.

Governor of the Bank of England Andrew Bailey said inflation is "still too high and we've got to deal with it.

"We know this is hard – many people with mortgages or loans will be understandably worried about what this means for them.

"But if we don't raise rates now, it could be worse later."

It follows a higher-than-expected inflation reading in May as continued price rises forced policymakers into action in a bid to bring inflation down to the 2% target.

Calls are growing for the government to do more to help mortgage borrowers who are set for a big jump in their monthly repayments.

Finance Minister or Chancellor of the Exchequer Jeremy Hunt said the government's resolve to bring inflation down was "watertight."

He said: "The lesson from other countries is that if you stick to your guns, you bring inflation down.

"Our resolve to do this is watertight because it is the only long-term way to relieve pressure on families with mortgages. If we don't act now, it will be worse later."

Hunt and Sunak have so far dismissed suggestions that ministers could intervene.

Shadow chancellor Rachel Reeves said Labour did not support direct state support for struggling mortgage-holders, but said "we've got to have a targeted scheme."

She added: "There are people who are particularly impacted, who are really struggling, through no fault of their own, with those higher mortgage payments.

"Also, we do have a huge inflation problem in the UK and lots of untargeted fiscal support from the government is not the right response when we need to tackle inflation."

Hunt is set to meet with lenders on Friday as pleas grow for more to be done and met with consumer champion Martin Lewis, who on Tuesday said that a mortgage ticking time bomb is now "exploding."

Concerns over continued increases in wages alongside persistent goods and services inflation had already driven mortgage rates higher in recent weeks.

Financial markets are now predicting that interest rates will strike a high of 6% at the year end amid warnings that 1.4 million mortgage holders will lose at least a fifth of their disposable income in additional repayments.

The central bank's Monetary Policy Committee (MPC) said on Thursday that it made the decision to hike rates more sharply due to "the background of a tight labour market and continued resilience in demand".

Seven members of the nine-person MPC opted for the increase to 5%, but two members called for rates to remain flat.

Meanwhile, parliament member John Baron became the latest Conservative to criticize the Bank of England, accusing it of being "out of touch with reality" and "behind the curve" on inflation.

The Commons Treasury Committee member told LBC radio: "I think what they need is a fundamental review, the Bank of England and central banks, of how they make their forecasts, economic and inflation.

"Because they've been so out of touch with reality, that I think you could get rid of all the central bank leaders, (but) I'm not sure that would do markets, a lot of good…"