Suren Thiru discusses the rise in interest rates
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Earlier today, the central bank’s Monetary Policy Committee (MPC) met to discuss the fate of the base rate, which is the amount the financial institution charges banks and lenders when borrowing money. Ultimately, the Bank of England opted to raise interest rates once again by 50 basis points which means the base rate is now at 3.5 percent. While this decision is a boon for those with savings accounts, people with mortgages and debt payments are likely to be detrimentally affected in the short term.
This represents the ninth consecutive rise to the base rate as the central bank attempts to rein in the UK’s skyrocketing inflation rate.
Yesterday, it was shared the Consumer Price Index (CPI) rate of inflation to November 2022 came to 10.7 percent in a sign of it slowing down amid the rise in the cost of living.
While this was less than the 41-year high of 11.1 percent recorded for the previous year, this still represents a huge financial burden for consumers as the price of goods and services continue to remain sky-high.
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During the MPC’s meeting, the decision to increase the base rate was voted by a majority of six to three.
One member wanted the rate to be hiked by 0.75 percentage points, while other two members preferred to maintain it at three percent.
The central bank now forecasts UK GDP to drop by 0.1 percent in the fourth quarter of 2022 which, 0.2 percentage points stronger than expected in last month’s report.
However, the MPC noted that household consumption in the UK remains weak and most housing market indicators have continued the trend of softening.
Prior to today’s announcement, financial experts from ING James Smith, Antoine Bouvet and Chris Turner outlined why the central bank was likely to settle “somewhere in the middle” after last month’s huge rate rise.
The trio explained: “When the Bank of England hiked by 75 basis points for the first time back in November, it seemed obvious that it would be a one-off move. The clear signal was that markets were – at the time – overestimating the scope for future tightening.
“The forecasts released back then suggested that keeping rates at three percent would see inflation overshoot just in two years, while raising them to five percent would see an undershoot.
“In other words, we should expect something somewhere in the middle, and that’s why we think the bank rate is likely to peak at four percent early next year.”
More to follow...
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