Bank of England raises base rate to 4.5% a15-year high
After Eleven consecutive months of double-digit inflation, the Bank of England has raised
its base rate by a quarter of a percentage point to 4.5pc, reaching their highest level since October 2008.
The Bank's rate-setters are aiming to reduce inflation, which has been in double digits since August last year, with the current consumer prices index standing at 10.1pc - more than five times the Bank of England's 2pc target for inflation.
Despite the high inflation rate, the Bank has upgraded its growth forecast for the UK economy, predicting it will return to its pre-pandemic size by the end of the year. Just three months ago, the Bank predicted the UK economy would shrink for more than a year, but this has now been revised.
According to reports, there is a possibility that interest rates in the UK may rise up to 4.75% in the upcoming months in a bid to prevent a major recession. This is due to the cost of living crisis that has been prevalent recently. The Bank of England has been increasing the nation's base rate for the past year, raising now twelve consecutive times in an attempt to control inflation. However, inflation remains significantly higher than interest rates, currently at 10.1% as of 11 May 2023.
Experts believe that further increases are likely to take place, potentially to 4.75%. While rates have been raised to mitigate the impact of inflation, many believe that it is exacerbating the risk of a recession. Victor Trokoudes, CEO of Plum, stated that the Bank of England's recent comments suggest that interest rates may have peaked at 4%, and further rises would only be necessary if there was evidence of more persistent inflationary pressures. How wrong he was..
Despite the Bank of England's prediction that inflation will drop quickly to 4% by the end of the year, developments in the US may result in further rate hikes shortly.
The markets suggest that rates will reach 4.75% due to what's happening in other advanced economies, particularly the US.
Interest rate expectations can change very quickly, as seen with the Fed's decision to raise rates recently. Even if there are interest rate cuts, they are unlikely to be deep as central banks will want to ensure inflation is under control, unless there is a major recession.
Anyone on a fixed rate mortgage is safe for now, but if they are nearing the end of their rate they should seek advice from a mortgage adviser. Those on tracker or variable rates will feel this latest hike right away.