The Bank of England has raised interest rates from 3.5% to 4% as the cost of living crisis continues in the UK. This is the 10th consecutive rise and the highest rates have been for 14 years.
Interest rates were most recently increased in December from 3% to 3.5%. Rises have been consecutive since December 2021.
William Marsters, senior UK sales trader at investment platform Saxo says borrowers will be significantly affected by the decision to raise interest rates to 4%.
“With inflation currently at 10.5% the Bank has been stuck between a rock and a hard place for a long time with little to no choice but to hike rates again with a target of reducing inflation to as low as 2%,” Mr. Marsters told the Guardian.
“This rise in interest rates has hit borrowers hard and those with large mortgages or credit card loans in particular will continue to feel the squeeze with the cost of living already tightening any kind of consumer purchasing power. Some homeowners have even decided to roll the dice and apply floating rates to their mortgages, taking the pain now in the hope that inflation will soon reduce and rates turn lower again later in the year.”
Mr. Marsters concluded: “The UK is still likely to enter a recession in the coming months, something the BoE would have had to factor into their decision, and in the long term this should see consumer prices pressured, though many businesses will be negatively affected with costs already proving difficult to manage.”
What does the rise mean?
The Bank of England raising the interest will mean an increase in borrowing costs, affecting people without fixed mortgages and those paying back loans. The UK is set to enter a recession this year but the Bank of England believes it will now be shorter than previously thought.
How high could interest rates go?
More interest rates are likely to come from the Bank of England in 2023, but experts believe that rises may end by the middle of this year. Analysts believe the rate will peak at 4.5% in the summer.
The Bank of England’s Monetary Policy Committee meets eight times a year, with their next meeting planned for March 23.