Bank of England to Raise Interest Rates This Month
When policymakers are set to meet this week, experts predict that the Bank of England will raise interest rates for the tenth time in a row. This comes as the Bank of England is in the process of balancing the current high inflation with the risks of worsening the economic downturn.
However, this change could end up putting additional pressure on mortgage holders and businesses.
The central bank’s base rate is expected to increase by 0.5% to a figure of 4%. This would be the highest base rate since the 2008 financial crisis, and comes after nine successive increases from the Bank of England’s Monetary Policy Committee (MPC) since late 2021.
Reuters polled economists to see what they thought could happen next. Most economists polled predict that in March, the UK could be seeing one more rate rise, bringing the rate up to 4.25%. Some experts are saying that the rate could be up to 4.5% by mid-2023.
These increased interest rates have been adding to the increasing pressures put on homeowners who are paying mortgages. UK house prices could even plunge by as much as 20% following this recent dramatic spike in rates.
As many as 2.7 million homeowners with short-term fixed-rate mortgages are expected to pay a minimum of £100 per month more to refinance their borrowing at higher costs.
Many experts claimed in 2022 that the UK could be about to head into a period of prolonged recession. This came as the cost of living crisis discouraged people from spending, as many were struggling to simply pay for food, energy, and petrol. Energy bills and the cost of groceries became unaffordable for many as inflation peaked at 11.1% in October 2022, although it has eased somewhat since then.
This has been one of the most aggressive attempts at tackling inflation in the UK for decades. The central bank is expected to be close to its peak when it comes to increasing borrowing costs.
The Bank has been raising rates over a year. In December 2021, the base rate was 0.1%. This was in an attempt by policymakers to encourage consumer spending after the pandemic took a huge hit on the economy.
However, subsequent efforts to control inflation and bring the base rate down to the Bank of England’s target of 2% has led to increasingly tight monetary policies.
Official figures have shown some resilience in the job market, as well as stronger-than-expected performance for growth in gross domestic products. The Bank of England’s governor has also said that there could be a fall in inflation in 2023 after a drop in wholesale energy prices.
In December 2022 the MPC was split two ways, with two members voting to end rate increases and one member voting for a 0.75% point move. The Bank of England is expected to cut its forecast for inflation to be around 3-4% by the end of the year.
Philip Shaw, chief economist at Investec, has said, “In the UK, we are set for another year where real household disposable incomes are set to fall by about 3%, which will continue to squeeze spending and make a recession virtually unavoidable.”