Interest Rates Rise Again, Yet Economists Remain Hopeful

During a Monetary Policy Committee (MPC) meeting on Thursday, 2nd February, the Bank of England (BoE) raised interest rates for a 10th consecutive time in an effort to reduce inflation. The MPC voted by a majority of 7-2 to increase the Bank Rate by 0.5 percentage points to 4%, the highest level seen in 14 years. This increase comes even as the BoE said it now anticipates a much shorter and shallower recession than originally predicted.

Economic Outlook

By raising interest rates, the BoE aims to drive down inflation in a bid to tackle the soaring cost of living. Spiralling gas prices and supply chain issues, among other factors, have driven up the price of goods and services. As such, inflation remains close to its highest level in 40 years.

Validating its latest MPC decision, the BoE expects a rapid fall in inflation from December 2022’s 10.5% figure to 3% by the end of the year, dropping further to 1% in 2024. Announcing the recent interest rate rise, BoE Governor Andrew Bailey said that “low and stable inflation is the foundation of a healthy economy.”

Additionally, the MPC released a revised report outlining its more favourable predictions for economic growth. The report confirmed that the UK economy narrowly avoided recession at the end of last year with modest growth in the fourth quarter. It still expects the economy to shrink this year, but by far less than originally predicted.

Nonetheless, the economic landscape remains considerably weaker than in recent years for a variety of reasons—the COVID-19 pandemic, Brexit impacts and the energy crisis, to name a few. In fact, the size of the economy is likely to be at 2019 levels in 2026, a full seven years of lost growth.

Furthermore, the latest interest rate increase will continue to affect individuals and employers, with loans and mortgages becoming more expensive. For instance, a typical tracker mortgage will cost the borrower an extra £49 per month going forward.

Next Steps

While economists are hopeful that the projected recession will be shorter than anticipated, the market volatility of 2022 demonstrated that nothing is guaranteed. As such, it’s important to monitor economic trends while continuing to implement measures to cut costs and bolster business resilience. Moreover, during tough times—where business risk persists—some costs, such as insurance premiums, remain a worthy investment.

Contact us today for more information on preparing your organisation for economic uncertainties.

 

 

Contains public sector information published by GOV.UK and licensed under the Open Government Licence v3.0.

The content of this publication is of general interest and is not intended to apply to specific circumstances or jurisdiction. It does not purport to be a comprehensive analysis of all matters relevant to its subject matter. The content should not, therefore, be regarded as constituting legal advice and not be relied upon as such. In relation to any particular problem which they may have, readers are advised to seek specific advice from their own legal counsel. Further, the law may have changed since first publication and the reader is cautioned accordingly.     © 2023 Zywave, Inc. All rights reserved.

RS Risk Solutions Logo

If you would like advice or a quotation please contact us.

We are an independent and regulated UK insurance broker predominantly supporting clients in:
London and the South East including: Surrey, Kent, East Sussex, West Sussex, Ashford, Bexhill, Brighton, Caterham, Chatham, Copthorne, Crawley, Crowborough, Croydon, Dorking, East Grinstead, Eastbourne, Edenbridge, Forest Row, Gillingham, Gravesend, Hastings, Haywards Heath, Heathfield, Horley, Horsham, Hove, Kingston upon Thames, Leatherhead, Lewes, Lingfield, Maidstone, Newhaven, Oxted, Redhill, Reigate, Royal Tunbridge Wells, Seaford, Sevenoaks, Sutton, Swanley, Tonbridge, Uckfield, Woking, Worthing

More Articles

Charity Insurance

Charities throughout the United Kingdom face many risks that can result in loss, damage or liability for trustees—and for the charity as a whole. Risks

Tips for Avoiding Vishing Scams

Cyber-criminals are constantly developing new techniques to target and attack unsuspecting victims. One of these more recent methods is voice phishing, more commonly known as

RS Risk Solutions Logo

Request a callback

By providing the above information you consent to RS Risk Solutions Limited contacting you by any of the methods that you have provided details for. We will process this information in accordance with our privacy notice.

RS Risk Solutions uses cookies to monitor the performance of this website and improve user experience. To find out more about cookies, what they are and how we use them, please see our privacy notice, which also provides information on how to delete cookies from your hard drive.