What's happening?

The Bank of EnglandThe central bank of the UK. Like other central banks around the world, it tries to stabilise the economy by keeping down inflation and offering loans to struggling banks. meets eight times a year to decide whether they should change interest ratesThe interest rate tells you how high the cost of borrowing is, or how high the reward for saving is. If it is more expensive for businesses and consumers to borrow, they will spend less and inflation will fall. . When they met yesterday, they decided to raise them to 5%. This is higher than anyone expected.

Raising interest rates is supposed to help with slowing inflationAn increase in the price of goods in an economy. . Inflation is the rate at which prices grow over time. When inflation is high, our money is worth less because it has less purchasing powerThe amount that can be purchased for the same sum of money.. But some people think that raising interest rates may cause a recessionA period of economic decline. A recession occurs when a country's Gross Domestic Product falls for six months in a row. .

In May, the inflation rate in the UK was 8.7%. It was the same in April. British experts were hoping that inflation would fall, but instead it is remaining very high. For context, the Bank of England aims for an inflation rate under 2%.

So the Bank of England, which is an independent body not run by the government, decided to raise interest rates. When interest rates are high, you can gain money by saving, which encourages people to save their money instead of spending it.

Find out more

This is the thirteenth consecutiveOne after the other. time the Bank has raised interest rates to tackle inflation.

This causes prices to drop because there is less demand for products and companies want to encourage consumers to buy them.

But raising interest rates can also cause a recession, which is when the economy experiences two consecutive quarters of negative growth. Recessions can lower living standards and make life harder for the general public.

Yes! This policy will help to push inflation down, which means people's money will not keep losing its value so quickly. In fact, this is the best decision to ensure that the cost of living does not keep growing.

If a recession happens, that will certainly be bad news. But nobody can predict what will come to pass.

No! The fact that interest rates are being raised dramatically shows that we have no way of controlling this inflation.

They have already tried raising interest rates thirteen times and inflation is still very high. That suggests that we need to find a new approach if we want to stop the cost of living crisis.