What are the Government’s new plans?

In his first Spring Budget as Chancellor, Jeremy Hunt announced a number of ‘investment zones’ across the country.

The programme will provide 12 areas, split across England, Wales, Scotland and Northern Ireland, with £80 million in support and “put powers and money in the hands of communities that need it most”.

As part of the Government’s levelling up plans, these zones will drive business investment through “generous tax incentives” and bolster the UK’s potential as a hub for innovation.

In his speech, Hunt set out the eligibility for zones that wish to be part of the scheme. He said:

“To be chosen, each area must identify a location where they can offer a bold and imaginative partnership between local government and a university or research institute in a way that catalyses new innovation clusters.

“If the application is successful, they will have access to £80 million of support for a range of interventions, including skills, infrastructure, tax reliefs and business rates retention.”

The Government is using these investment zones to help deliver its mission from the levelling up white paper, which is “taking a holistic approach to ensure the benefits of growth and investment are felt by local communities”.

The first goal (or mission one) is to ensure that pay, employment and productivity rises in every area of the UK by 2030, creating “globally competitive cities” and bridging the gap between top-performing and lesser-developed areas.

Mission two is to increase public investment in R&D outside the Greater South East by at least 40%, seeking to leverage at least twice as much private sector investment and drive productivity.

What areas will benefit?

The Chancellor has named the following eight potential areas for investment zones:

• West Midlands
• Greater Manchester
• the North-East
• South Yorkshire
• West Yorkshire
• East Midlands
• Teesside

Of the remaining four, at least one will be in Scotland, Northern Ireland and Wales.

The Government is now in conversation with 38 local authorities about the investment zone schemes, including the eight already identified.

Which sectors are being targeted?

Within these investment zones, the Government is targeting five priority sectors.

Digital and tech

With the UK having a world-leading technology sector (behind the US and China), the Government hopes to replicate the success of tech companies in London, Oxford and Cambridge. Focusing on tech-led innovation will help leverage “digital strengths and untapped potential” nationwide.

Green industries

By creating long-term certainty and demand, the Government is looking to bring more environmentally-conscious businesses and development to the UK.

Life sciences

Aiming to make the NHS the country’s most powerful driver of innovation, the Government looks to build on the UK’s science and research capabilities and create a robust environment for life sciences firms.

Advanced manufacturing

The investment zone prospectus states, “the UK has a proud history in manufacturing” and that the Government hopes to harness the synergy between manufacturing and innovation. The core objective is to support jobs, drive productivity and deliver the UK’s net zero commitments by investing in the manufacturing sector.

Creative industries

The Government wants to focus on creative businesses to “build on the sector strengths, support growth and ensure benefits of the creative industries are spread across the UK”.

How will they work?

In principle, the investment zone scheme will work flexibly for the areas that receive the money. Chosen partners will be able to use tax relief and funding to boost their economy however they see fit.

Local authorities can use the £80m funding for a number of fiscal incentives, such as:

• Stamp duty land tax: full relief for land and buildings bought for commercial use or development for commercial purposes.
• Business rates: 100% relief for newly-occupied business premises and certain businesses expanding in the investment zone tax sites.
• Enhanced capital allowances: 100% first-year allowances for companies investing in plant and machinery assets.
• Enhanced structures and buildings allowance: accelerated relief to allow businesses to reduce their taxable profits by 10% of qualifying costs for non-residential investments per year.
• Employer National Insurance contribution (NIC) relief: zero-rate employer NICs on salaries of any new employees for at least 60% of their time, on earnings up to £25,000 per year for a period of 36 months per employee.

This funding can also apply across a range of “potential interventions” to attract investment and push growth in promising sectors. These include:

• Research and innovation: funding projects through R&D grants, loans and subsidies, which positively impact R&D expenditure and increase innovation.
• Skills: creating new apprenticeship opportunities and developing skill boot camps so communities can hone their skills.
• Local infrastructure: repurposing or purchasing land to build labs and commercial spaces, in turn, building the job market in these local areas.
• Local enterprise and business support: strengthening facilities and providing further support for start-ups and SMEs in the local areas.
• Planning and development: funding the recruitment of dedicated planning teams to deliver complex or large-scale developments.

When will the scheme begin?

Previous Chancellor Kwasi Kwarteng delivered the first mention of the investment zone scheme in the divisive September 2022 mini-budget.

Since then, Chancellor Jeremy Hunt has championed the project, saying:

“I totally support the benefits that investment zones can bring, but we will implement that policy in a way that learns the lessons of when similar models have been tried in the past, and we will make sure they are successful.”

The deadline for expressing interest in becoming part of the scheme ended in October 2022, with the Government aiming to start the rollout over the next two years.

Talk to us about your business.

In his first Spring Budget speech, Chancellor Jeremy Hunt announced a new “full expensing policy” to encourage business investment.

From April 2023 to March 2026, companies can claim 100% capital allowances on qualifying plant and machinery, writing off the cost of investment in one go.

The policy comes as the existing super-deduction, which provides a 130% capital allowance on qualifying plant and machinery investments (plus a 50% first-year allowance for qualifying special rate assets), ended on 31 March 2023.

Because of the new full expensing and 50% first-year allowance, the company can claim £10 million under full expensing and £1 million under the 50% first-year allowance in the year the expenditure is incurred.

The remaining balance of £1 million can be added to the special rate pool in a subsequent accounting period.

The Chancellor said he was introducing the scheme “with an intention to make it permanent as soon as we can responsibly do so.”

Kitty Ussher, chief economist at the Institute of Directors, commented:

“Our economy has been held back in recent years because people running businesses have felt nervous of committing to investment when the climate is so uncertain.

“The introduction of 100% full expensing for the next three years is therefore very welcome, and we urge it to be continued thereafter.”

The Chancellor also announced an enhanced credit for R&D, extensions to creative industry tax reliefs, and a set of 12 new investment zones across the UK.

In his speech on 17 March, Hunt said:

“If the super-deduction was allowed to end without a replacement, we would have fallen down the international league tables for tax competitiveness and damaged growth.

“I could not allow that to happen.

“That means that every single pound a company invests in IT equipment, plant or machinery can be deducted in full and immediately from taxable profits.”

Talk to us about your capital expenses.

The finance sector is making strides in female representation, according to a new report from the Women in Finance charter.

The report shows that the proportion of women in senior management roles across charter signatories rose to 35% in 2022.

Nearly three-quarters of the charter’s signatories increased female representation in senior management, while 6% maintained the same levels as in 2021.

Around half of the participants set ambitions high, aiming to achieve a target of at least 40% — which the top quarter of firms has achieved for the first time since the charter began in 2016.

The Government launched the charter in collaboration with think tank New Financial to encourage gender balance in the financial services sector. It now has over 400 signatories, covering more than a million employees.

Signatories of the charter must monitor their progress against self-created targets for women in senior management and make annual reports to the Treasury.

Treasury Lords minister Baroness Penn said:

“This report should serve as a marker of strong progress but also a reminder that we shouldn’t be complacent. I want to ensure that the Charter continues to be a tool for keeping the sector competitive, innovative, and productive.”

Understanding environmental, social and governance factors.

Environmental, social and governance (ESG) is a set of standards that measures how green, socially conscious and well-run a business is.

By looking at your business through an ESG lens, you may be able to predict how sustainable it is in the long run.

In this article, we’ll discuss how to assess your business’s environmental footprint, social impact and governance principles, and explain why running a forward-thinking business is so important.

How sustainable is your business?

The three core pillars of ESG are:

• Environmental — how does your business minimise its impact on the environment?
• Social — how does your business affect your employees and society as a whole?
• Governance — how good are your business’s governance and risk management strategies?

These three factors can tell you, your customers and potential investors how prepared your business is for the future.

Environment

Good data collection is essential if you want to accurately measure how green your business is. That means looking at your primary operations and keeping track of factors such as energy consumption and waste.

The more in-depth your data is, the easier it will be to spot areas for improvement and make positive changes to your business.

It’s also essential to benchmark against similar businesses for a more realistic picture of your environmental impact.

You should also take care not to “greenwash” your business practices. Greenwashing is when an organisation claims to be greener than it is. This could include highlighting more sustainable products or services to conceal environmentally damaging practices.

If you greenwash your business, it won’t just damage the planet —v it can also harm your reputation. The key is to make real, sustainable changes to your business operations — that’s what will help you get ahead.

Social

While it can be difficult to quantify a business’s societal impact, there are a few factors to keep in mind.

For employers, low staff turnover rates, fair pay and high morale are often good indicators of a positive workplace culture, along with diversity and inclusion policies.

Business owners should also examine how they keep customers’ sensitive data secure and whether their products and services are safe.

Governance

Good governance is all about integrity, openness and risk management. To measure this, you should consider your decision-making process and how you promote fairness, transparency and accountability in your business.

As a business owner, your finances will inform key decisions. Ensuring your accounting methods are up to scratch will help you produce accurate budgets and forecasts, keep you compliant and help you manage risks in your business.

Being transparent about your finances with investors and stakeholders is also essential to good governance.

Why is it important to meet ESG standards?

Stay compliant

Governments often introduce new legislation to help protect the environment and tackle climate change. While only large businesses need to report on their environmental impact in the UK, this could change in the future.

Furthermore, if you trade outside of the UK or have plans to, you’ll need to ensure you comply with international laws.

Thinking about your impact on wider society and implementing good Governance principles can also help ensure your business meets compliance requirements in the future.

Save money

Making your business environmentally friendly can save you money. Limiting your energy and water usage means lower utility bills, while going paperless can reduce paper and printing costs.

A higher staff retention rate can also cut down on time, money and resources put into recruitment. Meanwhile, good accounting practices will help you better understand your business, potentially leading to better financial decisions.

The Government also offers a number of schemes and tax reliefs to encourage businesses to improve their environmental impact.

For example, you could claim capital allowances on energy-efficient items or enter a climate change agreement to reduce your business taxes.

Secure funding

According to the Confederation of British Industry, around two-thirds of investors now take ESG standards into account when considering investment opportunities.

Thinking about your business’s impact and your governance principles can reassure investors that their money is in safe hands, helping you secure the funding you need.

Improve your brand image

Consumers are increasingly concerned about their social and environmental impact. Demonstrating your commitment to sustainable and ethical business practices can improve your brand image and attract more customers.

How to put ESG at the heart of your business

Digitalise your business

Limiting the amount of paper you use in your business can reduce your environmental footprint — as well as save you money on printing costs.

Digital systems can allow you to organise your information more clearly and back up your data. Cloud accounting technology could also make it easier to understand your finances and collaborate with your accountant.

Access to real-time data can help ensure you’re always working on the most up-to-date financial information, allowing you to forecast accurately and keep shareholders in the loop.

Listen to feedback from stakeholders

Asking for feedback from customers, employees and stakeholders can also help you future-proof your business.

Regular check-ins can help you maintain transparency and open communication with your stakeholders.

Work with experts

Experts from outside your organisation can give you valuable insight into how to prepare your business for the future.

For example, your accountant may advise you on upcoming changes to legislation and offer guidance on how to cut costs while minimising your environmental impact.

We can also use what we learn from your financial statements to identify potential risks to your business and offer solutions for you to address them.

Next phase of digital tax scheme to start in 2026.

Making Tax Digital for income tax self-assessment (MTD for ITSA) was originally set to roll out in 2018, but the road to personal tax digitalisation has been relatively rocky to date.

While the Government successfully introduced MTD for VAT for returns starting on or after 1 April 2022, MTD for ITSA has been postponed five times in as many years.

The latest delay means that self-assessment customers won’t need to comply until 6 April 2026. These new rules won’t affect all taxpayers at once, either; instead, a more phased approach will aim to ensure the smoothest transition possible.

The phased approach

When MTD for ITSA arrives in April 2026, only self-employed sole traders and landlords with an income over £50,000 will be mandated to follow the rules. Those earning £30,000 and above will need to keep digital records from April 2027 onwards.

The Government has launched a review into accommodating the needs of smaller businesses and is yet to announce a date for extending the legislation to partnerships.

Reasons for the delay and other changes

According to the Institute for Chartered Accountants in England and Wales (ICAEW), this deferral offers an opportunity for the Government to “get MTD for ITSA right”.

The Treasury acknowledged that the economic challenges caused by the Covid-19 pandemic and the ongoing cost of living crisis are already putting a strain on businesses across the UK.

As such, transitioning to a new way of doing taxes will put a greater administrative burden on self-assessment customers, many of whom are still unaware of the requirements for MTD for ITSA.

The Government hopes that delaying the rules will give customers more time to get their finances in order and familiarise themselves with MTD-compatible software.

Furthermore, the proposed phased approach could benefit many taxpayers, particularly those earning less than £30,000 a year. With more time to spare, HMRC will be able to look into ways to adapt the new service to support those with the smallest incomes.

Meanwhile, the ICAEW stated that the delay was “inevitable” due to only a small number of people participating in the MTD for ITSA pilot and several problems with digitalising the tax reporting of certain kinds of income.

What you need to do for MTD for ITSA

Keep digital records

Once the Government introduces MTD for ITSA, self-assessment customers must create and store digital records of all business income and expenses using MTD-compatible software.

You can find a full list of compatible software on the HMRC website, and you still need to enter your Government Gateway user ID and password into your software and follow the instructions to authorise it.

Send quarterly updates to HMRC

Once set up, your software will automatically add up your digital records every three months, creating totals for each income and expense category.

These quarterly updates will give you an estimate of your tax bill. You do not need to adjust these updates if you don’t want to – but doing so may make the estimate more accurate.

Your software provider will also prompt you to send updates for each income source to HMRC every quarter. You will need to do this within a month of each standard quarterly period ending or else face a penalty.

Self-assessment customers with more than one business will need to meet the requirements for each individual business – that means separate records and separate submissions for each income source.

Finalise your business income

Instead of completing a self-assessment tax return at the end of each year, you will need to finalise your business income with a final end-of-period statement (EOPS).

If you need to make tax or accounting adjustments to your EOPS, you should do so before your final submission.

For the time being, it looks like the current deadlines for tax payments and payments on account will stay the same, so you’ll still need to keep those dates in your diary.

According to HMRC, your software provider will help you meet these requirements, prompting you to send updates in time and advising you on how to adjust to this new way of working.

You can authorise an agent to act on your behalf if you prefer. That means that if your accountant is already handling your self-assessment returns under the current rules, you won’t need to re-authorise them for MTD for ITSA.

While making the transition to MTD for ITSA is a significant change, there are many advantages to keeping digital records beyond simply helping you stay compliant.

Why you should keep digital records

Technology has revolutionised how we do our taxes, and paper records are quickly becoming a thing of the past – not just because of upcoming MTD rules. Storing your financial records digitally offers a wide range of benefits.

Instant updates

Keeping digital records means no more scrambling around for the latest financial statements. Instead, all the information you need can be stored in the cloud and updated in real time.

Once you’re signed up, you’ll be able to create instant reports and forecasts with the confidence that you’re always working on the most recent figures.

Furthermore, automatic quarterly updates under MTD for ITSA will allow you to keep a closer eye on your estimated tax bill throughout the year, giving you more time to put cash aside before the self-assessment deadline.

Freedom to work from anywhere

It doesn’t matter whether you’re at home, in the office, or on a long train journey – so long as you have a device with an internet connection, you’ll be able to log onto your account and view real-time data with ease.

Stay secure

MTD-compliant software can also help you keep your data secure. You’ll be able to restrict access to financial information to the people you choose and revise permissions at the click of a button.

Storing everything digitally will also make it easier to create backups, helping to ensure you don’t lose important data.

Easy collaboration

Cloud accounting software is also perfect for collaborating with your accountant on the go. Multiple users can access the same data simultaneously, allowing you to work on tasks with others and reducing the risk of anyone using outdated information.

Starting your digital journey

While MTD for ITSA rules won’t come into effect for a few years, going digital sooner rather than later will help you prepare well ahead of 2026.

Get in touch to find out how we can support your business with MTD for ITSA.

Why it pays to save for retirement.

Tax relief is one of the best features of using a pension to save for retirement.

When you pay into your pension, some of the money that would have gone to the Government as tax goes instead into your pension pot, which can help reduce the amount of tax you pay and boost your savings.

How does pension tax relief work?

There are two ways you can get tax relief on your pension contributions.

If you’re in a workplace pension scheme, your employer chooses which method you use; if you’re in a personal pension, you always have to use the relief at source method.

The easiest way to check which method your scheme uses is to ask your HR department (or whoever handles payroll for your employer) or, if you’re self-employed, your pension provider.

Relief at source

With the relief at source method, your pension contributions receive a boost from the Government matching the highest rate of income tax you pay: 20%, 40% or 45%.

In practice, this means for every £1 a basic rate taxpayer contributes to their pension, the Government tops it up by 25p because £1.25 taxed at 20% is £1; conversely, higher and additional rate payers see every £1 they contribute become £1.66 and £1.82 respectively thanks to tax relief on their contributions.

If you live in Scotland and pay tax at the Scottish starter rate of 19%, you still get tax relief on your pension contributions at 20%.

Here’s how the relief at source method works step by step:

1. Your employer deducts tax from your taxable UK earnings as usual.
2. They then deduct your pension contribution from after-tax pay and send this to your pension provider. If you’re self-employed, you will contribute your taxable UK earnings directly to your pension provider.
3. Your pension provider then claims 20% in tax relief from the Government, which they add to your pension pot.

This method is better for people who don’t pay tax – for instance, if their income is below the personal allowance – as they still get tax relief.

However, people who pay higher income tax rates than 20%, whether employed or self-employed, have to claim the extra tax relief through their tax return or directly from HMRC.

Net pay

Through the net pay method, you make your contributions before paying taxes. As a result, you will pay less tax as it will be calculated based on a lower amount of UK earnings.

Here’s how the net pay method works in more detail:

1. Your employer deducts the total amount of your pension contribution from your pay before deducting your taxes.
2. You then pay tax on your UK earnings minus your pension contribution. As a result, your tax bill will usually be lower.
3. Although you’ve paid the total amount of your pension contribution yourself, you get the tax relief straight away by paying less tax.

Unlike the relief at source method, no matter the rate of income tax you pay, you get the entire tax relief without having to claim it.

However, this method means you won’t get any tax relief if you do not pay income tax.

Limits on tax relief you can receive

While there is no limit on the amount of money you can put into your pension each tax year, there are limits on the amount you can save while claiming tax relief.

First, the Government only gives tax relief on pension contributions that are the higher of:

• 100% of your relevant UK earnings in a year
• £3,600.

So, if you personally put all of your £20,000 salary into your pension pot one year plus £5,000 you had set aside, you would only be entitled to tax relief on the first £20,000, leaving you with a net contribution of £30,000 (£25,000 from yourself and £5,000 from the Government. You do not get tax relief on contributions made by your employer.

If your relevant UK earnings are less than £3,600, your gross pension contributions are limited to this £3,600. That means only the first £2,880 of your payments will receive tax relief, as the Government’s subsidy would leave you with £3,600 in your pension pot.

Second, only contributions within the annual allowance qualify for tax relief; contributions that go over it may be taxable, which effectively claws back any excess tax relief given.

For most people, the annual allowance is £40,000, but it reduces by £2 for every £1 you earn if you have an adjusted income above £240,000. So, an individual with an adjusted income of £280,000 would have an allowance of £20,000.

This ‘tapering’ ends at £312,000, so everyone will always have an annual allowance of at least £4,000.

If you’ve triggered the money purchase annual allowance (MPAA), your allowance may also be £4,000. The MPAA is usually activated if you take your entire pension pot as a lump sum or start to take lump sums from your pension pot.

The annual allowance applies across all your pension savings – not per pension scheme. It also applies to combined employee and employer contributions.

However, you can use unused allowance from up to the previous three tax years to receive tax relief on higher contributions (this is known as ‘carry forward’, and conditions apply).

What counts as relevant UK earnings?

Tax relief on pension contributions is only available on relevant UK earnings, which include:

• income from employment (including salary, wages, bonus, overtime or commission)
• self-employment profits
• benefits-in-kind
• redundancy payments above the £30,000 tax-exempt threshold.

They don’t include the following:

• dividends
• savings income
• rental income
• pensions in payment
• state benefits.

To get tax relief on pension contributions, you must be a UK resident and below the age of 75.

How much can you build up in your pension?

Although there is no limit to the amount you can save in pensions, there is a lifetime limit on the amount you can build up without potentially having to pay a tax charge when you access your pension or transfer it overseas.

The lifetime allowance limits your tax-free pension pot to £1,073,100 and will remain frozen until April 2026.

Any amount above your lifetime allowance is subject to a tax charge of 25% if paid as income or 55% as a lump sum.

Talk to us about your pension contributions.

The Association of Taxation Technicians (ATT) welcomes a report by the House of Lords expressing concern over proposed reforms to the R&D scheme.

 The report, published on 31 January, highlights the need to pause any upcoming changes to the SME and R&D expenditure credit (RDEC) schemes. Some of the changes are due to come into effect this year, while other, more significant reforms are set for April 2024.

Elsewhere in the report, both the ATT and Finance Bill sub-committee underline the risk of fraud and error in the current R&D schemes but conclude that any proposed rule changes will be ineffective in isolation.

The proposed changes due to come into effect in April 2023 include the following:

• A reduction in the rate of relief available under the SME regime.
• Additional administrative requirements, including providing additional information when making a claim and pre-notifying of an intention to claim where no claim has been made in the past three years.

HMRC launched a consultation at the start of January, which proposes merging the RDEC and the SME R&D schemes, set to launch in April 2024.

The Government says it aims to change the way R&D works to “ensure taxpayers’ money is spent as effectively as possible”.

Those who wish to comment on the proposal can do so until 2pm on 13 March by emailing RDTaxReliefs@hmtreasury.gov.uk.

Senga Prior, chair of the ATT steering committee, said:

“We do not consider that restricting the level of relief available to all SMEs is a proportionate way to target abuse.

“We agree with the House of Lords report that the administrative changes proposed will not, on their own, reduce the level of fraud and abuse in the R&D relief scheme. Instead, we think that, in many cases, they will merely increase administrative burdens for businesses.”

Speak to us about claiming R&D relief.

Speaking at Bloomberg’s European HQ in London on 27 January, Chancellor Jeremy Hunt outlined plans to grow the UK economy and turn the country into “one of the most prosperous countries in Europe”.

Hunt set out four ‘pillars’ for growth, including ‘enterprise’, ‘education’, ‘employment’ and ‘everywhere’.

Ideas include turning the UK into the next ‘silicon valley’ for tech innovation; wider access to university; bringing more people who are economically inactive into the workforce, and “levelling up” the country.

Hunt signalled that tax cuts would only come “when the time is right”, focusing instead on reducing inflation, which he described as the “best tax cut” the Government could offer right now.

Hunt said:

“Our plan for this year remains to halve inflation, grow the economy and get debt falling. But all three are essential building blocks for much bigger ambitions for the years beyond.”

The Confederation of British Industry (CBI) was optimistic about the Chancellor’s focus on growth.

Tony Danker, director general of the CBI, said:

“It’s only by improving the UK’s languishing performance on productivity that we can realise the huge economic potential in every corner of the country.

“There is much to get behind here with the Chancellor’s emphasis on using innovation as the foundation of the UK’s future economy and championing the strengths of the UK tech sector.”

However, the Institute of Directors (IoD) slammed Hunt’s speech, writing the Chancellor “should add a fifth E for ‘empty’ to his vision for the economy”.

Chief economist of the IoD Kitty Ussher said:

“Business needs government action to counteract the negative mood, for example, through a continuation of the capital investment super-deduction, through tax credits for employers who invest in skill shortage areas and a plan to incentivise the net-zero transition for the SME sector.”

Get in touch to discuss your business.

Despite a record 11.7 million people submitting their tax returns on time, over 300,000 taxpayers missed the self-assessment deadline.

On 31 January, 861,085 taxpayers filed online to meet the deadline, some with minutes to spare – 36,767 individuals filed in the last hour before the deadline.

The peak filing hour on the day was between 16:00 and 16:59 when 68,462 taxpayers submitted their tax returns.

In total, 11,733,465 (97.3%) returns were received before the deadline, meaning an estimated 327,407 taxpayers missed the deadline – equating to £32m in late penalties for HMRC.

Around 10.9m (94.5%) of returns were filed online, with 385,296 (3.4%) filed on paper following adjustments.

HMRC urges customers who missed the deadline to submit theirs as soon as possible or risk facing a penalty.

Myrtle Lloyd, HMRC’s director general for customer service, said:

“Thank you to the millions of customers and agents who got their tax returns in on time.

“Customers who have yet to file and who are concerned that they will not be able to pay in full may be able to spread the cost of what they owe with a payment plan.”

Contact us to talk about your tax returns.

The Bank of England (BoE) has raised its interest rate by 0.5% to 4% following a monetary policy committee (MPC) meeting on 2 February.

This is the tenth consecutive time the Bank has increased interest rates, resulting in the highest base rate in 14 years.

The MPC voted by a majority of 7-2 to increase the bank rate. According to the BoE, this decision will help meet the 2% inflation target in a way that “sustains growth and employment” in the medium term.

High energy prices and a tight labour market continue to affect inflation. However, the Bank suggests it is likely to have peaked in the UK and that any upcoming recession may be shorter and less severe than feared.

There is likely to be a further increase in interest rates later this year, with the Bank planning to raise the base rate to 4.5% before the summer.

Commenting on the decision, the BoE said:

“The MPC will continue to monitor indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation.

“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

Talk to us about your finances.