As a result of the Bank of England’s latest increase in interest rates, mortgage-holders are now in a worse position.
The base rate has been increased from 3.5% to 4% in the most recent shift, the tenth consecutive increase.
It is the highest level since 2008, forcing mortgage-holders to tally the cost as the Federal Reserve works to curb inflation.
The change will increase the average monthly mortgage payment by £50.
As the Monetary Policy Committee (MPC) attempts to balance the sluggishing economy against the possibility of spiraling prices, there are optimism that the cycle of tightening may be coming to an end.
Overnight, the US Federal Reserve raised its rate by 0.25 percentage points, but signaled that further increases are expected.
Analysts anticipate that the Bank of England will increase interest rates from 3.5% to 4% when the decision is made at midday.
After soaring to a 40-year peak in October, inflation declined somewhat in December.
Bank governor Andrew Bailey expressed hope earlier this month, indicating that the nation’s inflation issues have reached a turning point.
The nine-member MPC is anticipated to be divided, with some members favoring a smaller rise or none at all.
The likelihood that interest rates will peak at 4.5 or 4.25 percent next month before declining is growing.
Bank governor Andrew Bailey expressed hope earlier this month, indicating that the nation’s inflation issues have reached a turning point.
While the United Kingdom still faces a recession, he said that it may be “shallower” than originally anticipated, signifying a less severe economic collapse.
The International Monetary Fund (IMF) estimated on Tuesday that the British economy will fall by 0.6% this year, making it the only major economy to experience recession.
Chancellor Jeremy Hunt accepted the gloomy outlook but claimed that the United Kingdom’s long-term development prospects are brighter.
It implies that the Bank could enhance its economic prognosis from the present projection of an eight-quarter recession, which would be the longest since reliable records began in the 1920s.
According to the Bank’s projections, the duration and scope of the contraction could be reduced.
The Bank has been increasing interest rates for over a year. After Covid hindered the economy, officials attempted to boost consumer spending by reducing the unemployment rate to 0.1% in December 2021.
Since then, the Bank has tightened monetary policy in response to efforts to rein in inflation and bring it back down to the Bank’s 2% target.
However, the consumer prices index (CPI) inflation rate in the United Kingdom decreased to 10.5% in December from 10.7% in November and 11.1% in October, indicating that the measure has now reached its peak.
Deutsche Bank posits that today will be the MPC’s last “vigorous” increase in the tightening cycle.
Societe Generale Global Economics predicted the same, but added that it anticipates another 0.5 percentage point increase in March, followed by a decline.
Even though the picture is less bleak than anticipated three months ago, we still believe a recession is likely, and the MPC’s predictions should continue to predict one for this year.
This, along with accumulating signs of a little deceleration in the labor market, vacancies and job growth in particular, may prompt the committee to consider an imminent end to monetary tightening.
Chancellor Jeremy Hunt has declared that combating inflation is his primary objective.
Previously, the IMF predicted that the UK’s GDP would expand by 0.3% in 2023; however, it now predicts a 0.6% decline.
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