The Bank of England is expected to add another 50 basis points to Bank Rate this week and take borrowing costs to 3.5%, despite the economy falling into recession, as it battles inflation running at more than five times its target.
A number of homeowners will be hit by higher mortgage charges if Bank of England bosses press ahead with the rate hike when they meet on Thursday.
Analysts expect the Bank’s base interest rate to be hiked from 3% to 3.5%, which would be a 14-year high.
At the central bank’s monetary policy committee (MPC) meeting last month, interest rates were pushed up by 0.75 percentage points to 3%.
Just 18 months ago, borrowers could find a fixed-rate two-year mortgage with an interest rate of 1.5%, but must now accept 5.5%.
Paul Dales, chief UK economist at consultancy Capital Economics, believes the MPC “may indicate that it is starting to think more about the level of rates rather than the pace of hikes” when it meets.
“Even so, we think it will want to see more concrete signs that domestic inflationary pressures are easing before halting the hikes,” he added.
The consumer prices index (CPI) stood at 11.1% in October, the highest inflation the UK has faced in more than 4o years, and inflation has been above the Bank’s 2% target since May last year. Most analysts believe we have reached a peak and that figures this week will show that the CPI for November fell slightly, although the rate of increase is likely to remain near double digits until at least spring.
Britain is almost certainly heading into a recession, with economists giving a median 85% chance of one within a year.
The UK economy shrank between July and September as the country heads into an expected recession.
The economy contracted by 0.3% during the three months as soaring prices hit businesses and households.
A country is in recession when its economy shrinks for two three-month periods in a row. The UK is expected to be in one by the end of the year.
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Increasing interest rates will not bring down supply side inflation, it just piles on misery to those people & businesses with loans. It’ll make the recession deeper & longer (of course, it’s what the WEF wants).
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I really don’t see what other choice the BOE have at this stage.
It will be hard but I don’t think the recession will be longer due to this action.
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