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UK interest rates are raised by the Bank of England to their highest level since 2008

By 05/11/2023 1:32 PMNo CommentsBy YidInfo Staff

To continue fighting the U.K.’s stubbornly high inflation, the Bank of England increased interest rates to their highest level since late 2008.

Financial markets broadly anticipated the bank’s Monetary Policy Committee’s Thursday decision to increase its primary interest rate by a quarter of a percentage point to 4.5%. Its 12th consecutive increase was this one.

Only two of the panel’s members decided to maintain the current rates.

The Bank of England has worked to contain inflation, driven in recent months by Russia’s invasion of Ukraine, like other central banks worldwide. That caused energy prices to jump, which in turn caused price hikes across various products.

To contain price increases initially driven mainly by bottlenecks caused by the relaxation of coronavirus lockdown restrictions and later by Russia’s war in Ukraine, the Bank of England began hiking interest rates in late 2021 from a low of 0.1%.

Higher interest rates aid in controlling inflation by making borrowing more expensive for individuals and firms, which may lead to them spending less overall and lessening the upward pressure on prices.

The bank, responsible for maintaining inflation at a rate of about 2%, predicted that by the end of this year, inflation will probably have decreased from its present levels to about 5%. As the year-over-year energy price comparisons become less significant, inflation will inevitably decline.

Although the backdrop of rising oil prices may contribute to reducing inflation, the bank said that food prices have remained higher for longer than anticipated, in part due to Russia’s conflict in Ukraine and poor harvests in certain European nations.

As a result, it stated that this year’s inflation drop is anticipated to be slower than initially expected.

Borrowers will be under increased pressure due to the interest rate increase, especially those with mortgages that follow the bank’s headline rate.

Because they refinance their mortgages during the coronavirus outbreak, many homeowners will be protected from the latest hikes.

When looking to lock in new deals, customers whose fixed rate periods are about to expire will encounter substantially higher borrowing rates.


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