UK

Bank of England pushes up interest rates AGAIN to 4%


Bank of England pushes up interest rates AGAIN: Mortgage-payers count the cost as base rate hits new 15-year high of 4% to tackle rampant inflation… but is the worst over?

  • Bank of England’s latest interest rate decision is due to be announced at noon
  • Hopes that the increases in Bank’s base rate might be coming to an end soon 
  • Are you a prospective homebuyer or on a tracker/variable rate mortgage? Email [email protected] to say what a rate rise would mean for you 

Mortgage-payers face more pain today after the Bank of England hike interest rates again.

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The base rate has been pushed from 3.5 per cent to 4 per cent in the latest move – the 10th successive increase.

It is the highest level since 2008 – leaving mortgage-payers counting the cost as the Bank struggles to contain rampant inflation.

However, there are hopes the cycle of tightening could be coming to an end, as the Monetary Policy Committee (MPC) tries to balance the slowing economy against the threat of spiralling prices.

Overnight the US Federal Reserve increased its rate by just 0.25 percentage points, although it signalled there is likely to be more to come. 

Analysts are expecting the Bank of England to raise interest rates from 3.5 per cent to 4 per cent when the decision is announced at noon

Inflation dropped slightly in December after spiralling to a 40-year high in October

Inflation dropped slightly in December after spiralling to a 40-year high in October 

Bank governor Andrew Bailey provided some optimism earlier this month, suggesting the country's inflation woes have turned a corner

Bank governor Andrew Bailey provided some optimism earlier this month, suggesting the country’s inflation woes have turned a corner

The nine-strong MPC is predicted to be split, with some members favouring a smaller hike or no increase at all.

Speculation is mounting that rates could peak at 4.5 per cent or 4.25 per cent next month, before coming back down.

Bank governor Andrew Bailey provided some optimism earlier this month, suggesting the country’s inflation woes have turned a corner.

While Britain still faces a recession, he indicated it could be ‘shallower’ than previously expected, indicating a less severe downturn.

On Tuesday the International Monetary Fund (IMF) predicted the UK will be the only major economy in recession this year, with the economy set to contract by 0.6 per cent.

Chancellor Jeremy Hunt acknowledged the grim forecast but insisted the UK’s long-term prospects for growth are more promising.

It means the Bank could upgrade its outlook for the economy from the current forecast of a recession lasting eight quarters – which would be the longest since reliable records began in the 1920s.

The length and extent of the contraction could be shortened in the Bank’s estimations.

The Bank has been raising rates for more than a year. In December 2021 the level stood at just 0.1 per cent as policymakers tried to encourage consumer spending after Covid slowed the economy.

Efforts to control inflation and bring it back down to the Bank’s 2 per cent target has led the Bank to tighten monetary policy since then.

However, the UK’s consumer prices index (CPI) inflation rate slipped slightly to 10.5 per cent in December, down from 10.7 per cent in November and 11.1 per cent in October, suggesting the measure has now passed its peak.

Deutsche Bank suggested today would mark the MPC’s final ‘forceful’ hike in the tightening cycle.

Societe Generale Global Economics suggested the same, but said it expects another 0.5 percentage point hike in March before coming back down.

The SocGen economists said: ‘Even though the outlook is less gloomy than expected only three months ago, we still think a recession is likely and the MPC’s forecasts should continue to predict one for this year.

‘This, and the mounting evidence of some cooling in the labour market, vacancies and job growth in particular, should lead the committee to contemplate an imminent end to tightening.’

Chancellor Jeremy Hunt has insisted tackling inflation is his top priority

Chancellor Jeremy Hunt has insisted tackling inflation is his top priority

The IMF is now forecasting that the UK’s GDP will contract by 0.6 per cent in 2023 - it was previously expected to grow by 0.3 per cent

The IMF is now forecasting that the UK’s GDP will contract by 0.6 per cent in 2023 – it was previously expected to grow by 0.3 per cent 

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