The Bank of England today raised its base rate by 50 basis points from 3.5% to 4%. This is the highest interest rate since October 2008.
The Monetary Policy Committee voted 7-2 to raise interest rates to their highest level in 14 years.
4.5% in October 2008 was over 4%.
10 consecutive increases.
The Bank of England’s Monetary Policy Committee (MPC) has decided to raise interest rates by 50 basis points, primarily to curb inflation. Two members hoped he would keep the rate at 3.5%.
The MPC said its 2% inflation target will remain unchanged and further steps will be taken to curb inflation if necessary.
In a statement, the MPC said: “It is clear that the MPC’s mandate will always apply to inflation targeting, reflecting the overriding priority of price stability in the UK’s monetary policy framework.
“The Framework recognizes that inflation can deviate from target as a result of shocks and disruptions. The economy has been subjected to a series of very large and overlapping shocks. As an adjustment to these, we guarantee that CPI inflation will return to the 2% target sustainably in the medium term as long as the shock persists. It functions to ensure that the target is fixed.
Bank forecasts suggest the UK will slip into recession this year, though it could be slower than earlier forecasts had feared.
The benchmark rate hike, widely anticipated by experts, has been seen as a signal of banks’ intent to stem runaway inflation, which is currently above 10%. The inflation target remains at 2%.
In December, when the bank’s base rate was last reviewed, the MPC voted to raise the rate by 50 basis points from 3% to 3.5%.
The latest rise marks an unprecedented period of appreciation for the base rate, which was just 0.1% in March 2020.
Mortgage and savings rates are expected to rise following the recent rise.
Despite the rise, some experts see banks unlikely to raise interest rates significantly in the near term amid signs that inflationary pressures are beginning to subside. With the UK facing a recession this year and possibly next year, some experts believe a slowing economy will keep inflation in check.
In the US, the Federal Reserve this week raised the target rate by 25 basis points, raising the target range to 4.5% to 4.75%.
The reaction of industry experts to the Bank of England tax hike came as little surprise.
Claire Moffat, pensions expert at Royal London, said: “With inflation continuing to stubbornly rise, today’s additional base rate hike is not surprising, but welcome to borrowers of all ages. No news.Lot owners of variable rate mortgages, those who exit fixed rate contracts will see their costs rise significantly, and many renters will see their prices go up as well.
A fifth (19%) of retirees admit to worrying about housing costs, according to Royal London’s Cost of Living survey, and the impact of rising interest rates on personal finances is keeping retirees from sleeping at night. Not a problem.
Adam Ruddle, chief investment officer at LV=, predicted that the benchmark rate will peak at 4.5%.
He said: half of the year. We think he will probably raise interest rates again in March before banks suspend. This year he expects it to peak at 4.5%. ”
Jonny Black, Abrdn’s Strategy Director and Advisor, said:
“Advisors should be prepared to help those facing higher monthly costs. It could be meant to help identify those that can generate income.
“Looking ahead, there are indications that interest rates will rise further this year, to 4.5%. However, this is a fast-moving environment and there is little certainty. It’s about maintaining a long-term perspective and appreciating the help of advisors to avoid short-sighted reactions that can exacerbate them.