Provided by: RS Risk Solutions
Interest Rates Climb to Highest Level in 15 Years
During a Monetary Policy Committee (MPC) meeting on 21st June, the Bank of England (BoE) raised interest rates for a 13th consecutive time in an effort to tackle persistent inflation. The MPC voted by a majority of 7-2 to increase the Bank Rate by 0.5 percentage points to 5% the highest level seen in 15 years. The move comes after inflation remained at 8.7% in the year to May, despite economists originally anticipating a fall.
Economic Outlook
Financial markets had expected interest rates to rise by 0.25 percentage points, but the surprise 0.5% jump was made to tackle stubborn high core inflation. Currently, the UK has the highest inflation rate in the G7, a statistic that the BoE may be keen to address.
Increased Financial Pressure
With yet another Bank Rate Rise, UK households will continue to experience financial pressures. Specifically, households with mortgages not currently within fixed rates will see their monthly payments increase immediately, approximately £47 per month more for those with a typical tracker mortgage.
Consequently, the cost-of-living may continue to bite for many. In fact, more than 1.4 million mortgage holders could see their disposable incomes fall by more than 20%, according to the Institute for Fiscal Studies. Worse still, renters may also be affected should landlords need to pass borrowing costs on.
Governor of the BoE said “We know this is hard-many people with mortgages or loans will be understandably worried about what this means for them. But if we don’t raise rates now, it could be worse later.”
Next Steps
With disposable incomes hit by the latest interest rates rise, individuals and businesses need to look at ways to cut cots while staying abreast of the economic outlook.
Indeed the Bank Rate could yet ruse further, “We (the BoE) are committed to returning inflation to the 2% target and will make the decisions necessary to achieve that.”
Regardless, some costs, such as insurance premiums, remain a worthy investment during tough economic times where business risk persists.
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