The Bank of England has raised its interest rates for the 14th consecutive time, pushing the official rate to 5.25%. This quarter percentage point increase was slightly lower than some economists had predicted, owing to lower-than-expected inflation data last month.
Bank Governor Andrew Bailey highlighted the positive impact of falling inflation, emphasizing the need to bring it back to the 2% target. The decision to raise rates aims to tackle inflationary pressures, though it acknowledges the difficulties it poses for many households.
Despite the rate increase, the Bank’s forecasts reveal a weaker economy than previously anticipated, projecting flatlining growth until 2026. The prolonged high-interest rate environment is expected to be a contributing factor to this economic situation.
The Monetary Policy Committee (MPC) was divided on the rate decision, with some members advocating for a more substantial increase. Economists and financial markets are foreseeing further rate hikes, with expectations of a peak rate of 5.75% or slightly higher.
The Bank’s forecasts indicate a possibility of achieving the government’s pledge to halve inflation by the year-end, though uncertainties remain. GDP growth forecasts are also revised downwards, indicating a prolonged period of sluggish economic growth.
While the rate increase may bring challenges to households and businesses, Chancellor Jeremy Hunt remains encouraged by the Bank’s inflation forecast. He emphasizes the importance of sticking to the plan to bring inflation down, as it could eventually lead to lower interest rates and ease pressure on mortgage holders.
On the opposition front, Labour’s shadow chancellor, Rachel Reeves, expresses concern over the rate hike’s impact on households, holding the Tory government responsible for the economic crisis.
