Rate rises to 4.5%
The Bank of England (BoE) has decided to raise interest rates again by 25 basis points, increasing the current bank base rate from 4.25% to 4.5%.
Seven members of the bank’s Monetary Policy Committee (MPC) voted for the 0.25% increase, while two members preferred to maintain bank rate at 4.25%.
The bank rate has now increased for the 12th consecutive time, with rises at each of the MPC meetings since December 2021, causing the base rate to gradually climb from a record low of 0.1% to the highest level it has been since the economy was hit by the 2008 global financial crisis.
The central bank has been trying to control soaring inflation by increasing the cost of borrowing, but it has not been very successful last year with inflation even hitting a four-decade high of 11.1% in October.
The Monetary Policy Committee voted by a majority of 7-2 to raise #BankRate to 4.5%. Find out more in our #MonetaryPolicyReport: https://t.co/zsyOpkm1FD pic.twitter.com/8IgWOarj70
— Bank of England (@bankofengland) May 11, 2023
While annual inflation eased at 10.1% in March, it is still a long way from the government’s inflation rate target of 2%.
“While increasing interest rates may be a viable strategy to combat inflation, it is crucial to consider the wider implications of such actions,” Riz Malik, director at mortgage brokerage R3 Mortgages, commented. “The repercussions of countless interest rate hikes have become painfully evident as the UK teeters on the brink of economic stagnation. It is high time for a re-evaluation of this approach – enough is enough.”
Wes Wilkes, chief executive at wealth management firm Net-Worth NTWRK, agreed, saying that the Bank of England should not have raised rates today.
“Raising rates is a knife in this particular inflationary gunfight, but it’s the only weapon Threadneedle Street has,” he remarked. “It is a fight of the bank’s own making due to it being so late in tackling inflation.”
Justin Moy, managing Director at brokerage EHF Mortgages, added that this would have been the right time for the Bank of England to do nothing after 11 consecutive increases over the past year or so.
“The markets are telling us all that rates can drop soon once inflation is under control, so to increase the bank rate now seems a little pointless and just ebbs away at the confidence of borrowers, both individual and businesses,” Moy pointed out.
Graham Cox, founder at SelfEmployedMortgageHub.com, believe that the BoE made the decision to hike the base rate “as not doing so when the Fed and ECB have just raised their rates could cause Sterling to weaken against the dollar and euro.”
“On the other hand, raising rates risks over-tightening and causing huge damage to the economy,” Cox said. “Talk about being between a rock and a hard place.”
Rob Gill, managing director at Altura Mortgage Finance, pointed out that the rate hike is already “largely priced in by mortgage lenders.”
“There is widespread expectation inflation and interest rates will fall late this year and early next,” he said.
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