High Inflation: Bank of England again, to raise interest rates

*Disappointing inflation figures showing prices have not eased in the United Kingdom are likely to lead the Bank of England to raise interest rates for the 13th time in a row, says report

Isola Moses | ConsumerConnect

Interest rates could hit their highest level in more than two decades

The Bank of England (BoE) in the financial district of the City of London.

Disappointing inflation figures showing prices have not eased are likely to lead the Bank of England to raise interest rates for the 13th time in a row Thursday, June 22.

The Office for National Statistics reported  Wednesday, June 21, 2023, that the UK’s Consumer Prices Index (CPI) was unchanged in May at a rate of 8.7 percent, reports National News.

Report also indicates the rate was higher than expected for the fourth month in a row and indicated that inflation has remained persistent despite the bank’s efforts to bring it down to the 2 percent target.

Caught by surprise on inflation, the only way is up for mortgage payments

Economists agree that the bank’s Monetary Policy Committee is likely to raise interest rates Thursday from the current rate of 4.5 percent and that more increases are on the horizon, report noted.

Financial markets are expecting interest rates to rise by 0.25 percentage points to 4.75 percent.

But there is a 40 percent chance that the rate could be pushed up even higher, by 0.5 percentage points to 5 percent.

“Settling on the larger of the two risks, adding fuel to the fire for rate expectations, a message the MPC will think long and hard about given the impact this would have for what is now termed the ‘mortgage time bomb’ for households and landlords that refinance borrowing,” said Sandra Horsfield, an economist at Investec Economics.

It comes as concerns have mounted over the mortgage market, with the average two-year fixed residential mortgage rate surpassing 6 percent, according to data from Moneyfactscompare.co.uk.

Moreover, expectations of where rates will peak have surged in recent weeks, with markets now expecting a high of 6 percent by early next year – their highest level in more than two decades.

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UK Chancellor says ‘best tax cut right now is a cut in inflation ‘UK Chancellor says ‘best tax cut right now is a cut in inflation’

Chancellor Jeremy Hunt said he has spoken to consumer champion Martin Lewis, who on Tuesday said that a mortgage ticking time bomb is now “exploding”, ahead of a meeting with Britain’s major lenders on Friday.

Banks have also come under fire from a group of MPs on the Treasury Committee for not raising savings rates as much as borrowing costs.

We’ll continue to jack up interest rates, says BoE

However, the Bank of England has said it will continue to raise interest rates as long as it sees signs of inflationary pressure.

Economists have said that important indicators of persistent inflation, namely core inflation, which strips out the price of energy, food, alcohol, tobacco and wage growth, have remained elevated, which is likely to worry MPC policymakers.

Core CPI rose to 7.1 per cent in May from 6.8 per cent in April, official figures showed.

“Getting the inflation genie back into the bottle is proving troublesome for the Bank of England,” said Rob Morgan, Chief Investment analyst at Charles Stanley.

“With price momentum continually running above expectations alongside strong wages data, the bank has no choice but to continue on a path of raising interest rates several more times.”

However, a Spokesman for Prime Minister Rishi Sunak said he was still on track to meet the government’s target of halving inflation by the end of the year, despite last month’s setback.

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