Bank of England interest rate hike: Northern Ireland economist says rise is painful was painful but will combat a ‘reckless price-wage spiral’ by businesses and unions

The Bank of England signalled on Thursday that it will continue to increase interest rates over the coming months, as it raised its base rate to a fresh 14-year high.

Decision-makers said that they are increasing interest rates from 3% to 3.5%, despite inflation easing last month.

Dr Esmond Birnie, Senior Economist Ulster University Business School said the decision will have "painful consequences for borrowers".He added: "Typical variable rate mortgage holders here in Northern Ireland could see monthly interest payments rise by about £25-35. All this comes on top of the other element of the cost of living increase:home heating, driving the car and foodstuffs etc."

However with a looming recession in 2023 the rise was necessary, he said.

"The tiger of inflation has been allowed to get out of the cage, inflation has been allowed to get out of control."

He said putting the tiger back into the cage will not be easy but the rate rise sends valuable to signal out.

It tells the government, that the Bank is serious about getting back down to its 2% inflation target.

"And it also tells price and wage setters - businesses, employees and unions - that they should not be reckless about engaging in a price-wage spiral."

tells the foreign exchange market that the pound will not be allowed to continue to slide against other currencies, particularly the Dollar, he added.

The rate rise of 0.5% is a slowdown from the last rise in November when rates were increased by 0.75 percentage points, and in line with what economists had forecast.

Rates have been raised in every meeting since late last year as the Bank tries to get inflation under control.

The Monetary Policy Committee (MPC), which sets interest rates, said a “forceful” policy response was justified as the labour market remained tight across the month.

There are also signs that inflationary pressures could stick around for longer than thought, it said.

Most of the MPC’s nine members agreed that they would continue to vote for rate rises if the economy broadly continues to develop as the committee expected when it last met a month ago.