The Bank of England’s Monetary Policy Committee (MPC) has this lunchtime increased interest rates by 0.25% to 5.25%.
6 of the 9 members of the Bank’s MPC voted for a 0.25% rise, 2 members favoured a 0.5% rate increase, with one member voting for rates to remain unchanged.
The latest interest rate rise, the 14th in a row, is slightly smaller than the previous month’s 0.5% rate increase.
With inflation falling to 7.9% in June there are potential signs that UK interest rates may now be reaching their peak, even if rates are not expected to actually fall in the near term. In today’s report the Bank of England Committee for the first time state that monetary policy is “now restrictive”.
The Bank of England further detailed their belief that inflation will now fall to 4.9% by the end of 2023. If this is the case, the government will meet its earlier stated objective of halving inflation by the end of this year.
Drawing on these latest forecasts by the Bank of England, the Chancellor, Jeremy Hunt said, “If we stick to the plan, the Bank forecasts that inflation will be below 3% in a year’s time without the economy falling into a recession, but that doesn’t mean that it is easy for families facing higher mortgage bills, so we will continue to do what we can to help households”.
Nonetheless in response to today’s announcement, Anna Leach, Deputy Chief Economist of CBI, has suggested interest rates could still rise further in future months. The CBI’s comments come in the context of inflation still being quadruple the Bank of England’s inflation target, with wage growth currently averaging 7%.
Claiming that the responsibility for the latest increase rate rise ‘lies at the door of the Conservative Party, Labour’s Shadow Chancellor, Rachel Reeves said, “The latest rise in interest rates will be incredibly worrying for households across Britain who are already struggling to make ends meet”.
Although today’s rates rise will add more pain for borrowers and mortgage holders, today’s increase will at the same time put further pressure on high street banks to increase the rates that they are paying to savers.