The Bank of England (BoE) has increased the base rate to 1.75% – the highest level seen since December 2008 (2%).
The central bank has been gradually ratcheting up the base rate over recent months with 0.25% increases in February, March, May and June.
However, today’s 0.5% increase marks a more aggressive move from the BoE as it battles to contain inflation against a background of soaring energy bills and spiralling food prices.
Economists had been split about the prospects of the rise with fears of a recession looming large. In the end, the BoE’s Monetary Policy Committee (MPC) voted in favour of the rise.
And the increase will undoubtedly spur another round of mortgage rate increases from lenders.
Figures published by the BoE last week show the effective interest rate on new mortgages rose to 2.15% in June, the highest level since late 2016 – this figure looks certain to increase further in the coming days.
Further rate increases by the BoE also look likely with headwinds facing the economy including the worst squeeze on consumer spending power in two decades, chronic labour shortages and continuing high fuel prices with colder months approaching.
Despite some signs that things are improving the International Monetary Fund is estimating that the UK may suffer the slowest growth in G7 next year.
This is despite rebounding from the pandemic more quickly than most other members.
And the struggles facing the economy has led to predictions of 15% inflation in 2023 – the BoE’s target for inflation is 2%.
The next decision on the base rate is due from the BoE on Thursday 15th September.
Article taken from The Intermediary Online