THE Bank of England and government’s “dangerous groupthink” will cost people their jobs and homes, unions warned today as interest rates were raised to unprecedented levels.

In a move that will “inflict pain on households,” according to union leaders, the bank pushed up interest rates to 5 per cent following the latest inflation figures — the sharpest hike since February.

The bank said the 0.5 per cent rise was required because wage growth and services inflation have remained elevated.

Financial markets are now predicting that interest rates will strike a high of 6 per cent 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.

TUC general secretary Paul Nowak said that pushing interest rates so high that the economy is driven into recession will only make the current crisis worse, costing people their jobs and their homes.

He said: “This interest rate hike is the result of dangerous groupthink in the Bank of England and Downing Street.

“Inflation was caused by global energy shocks and government should be doing more to ensure households and businesses benefit as prices fall.

“Instead of scapegoating workers who are desperate for their pay to keep up with prices, ministers should focus on a credible plan for sustainable economic growth and rising living standards.”

In a letter to Chancellor Jeremy Hunt on the decision, BoE governor Andrew Bailey highlighted that increased wages were pushing firms to increase prices to continue to rake in higher profits.

Unite general secretary Sharon Graham said that the bank was “yet again … making the wrong choice” by “inflicting pain on ordinary households across the UK by hiking up interest rates.”

She said: “This latest rise is nothing more than a handout to the banks who have already made bumper profits from 12 other interest-rate hikes.

“The 13th could put hundreds of thousands of mortgage holders in peril of not being able to pay their mortgage.

“Instead of blaming inflation on workers’ wage rises, it’s high time the governor of the Bank of England tackled the profiteers of corporate Britain.

“They are to blame for the current crisis.”

Shadow chancellor Rachel Reeves said that families “want to know that support will be there if they need it.

“Instead, the Chancellor and Prime Minister are burying their heads in the sand and failing to clean up the mess this Tory government has made.”

Scottish Labour housing spokesperson Mark Griffin said that the “chaos and incompetence” of the Tory government had “wreaked havoc on our housing sector and pushed hundreds of Scots to the brink.”

And Scottish Greens economy spokesperson Maggie Chapman said the hikes will make the struggle to make ends meet worse, adding: “These are real people who are suffering real consequences.

“After 13 years of Tory misrule, we urgently need to change the economy and the assumptions that underpin it.”

In his letter, Mr Bailey said policy-makers have “got to deal with” inflation now or the crisis will get worse.

Prime Minister Rishi Sunak insisted that struggling people need to take the pain from higher interest rates in order to quell inflation.

He said that while the figures are “hard” for struggling households, the government will “remain steadfast and stick to its plan” to curb levels.

Mr Hunt insisted that the government’s resolve to bring inflation down was “watertight.”

Both so far dismissed suggestions that ministers could intervene to help mortgage owners.