There could be another big shock for homeowners across the UK this week, as industry experts believe the Bank of England will increase the base rate by 0.75%. This will mean the most significant rise since 1989 and comes at a time when inflation has risen above 10%. The rate hike will mean soaring repayments for many borrowers already struggling with the cost of living and previous rate hikes.
There is further concern over the rash of spending cuts expected from the new Prime Minister, Rishi Sunak, which could result in a deep recession, a scenario for which the central bank is already preparing. On Thursday, the Monetary Policy Committee will confirm an eighth consecutive rate hike as the nation battles inflation; the only question is how sizeable it will be.
Britain in turmoil
With three Prime Ministers in a matter of months, Britain has already seen a lot of turmoil this year. In addition, Liz Truss’s short spell as Prime Minister brought a disastrous mini-budget that devastated financial markets.
The continued fight to bring inflation back down is an added burden and means that further turmoil and problems will likely stem from continued increases in borrowing costs. With the Prime Minister set to make substantial spending cuts and the base rate set to continue rising, the impact across Britain is likely to be huge.
The Bank of England also announced it will become the first global bank to start selling bonds from its stimulus stockpile, beginning this week.
The Bank of England has always said that aggressive action would be necessary to bring inflation down. However, senior officials now believe that the response may need to be much stronger than initially envisaged.
Earlier this month, Andrew Bailey, the Governor of the Bank of England, said: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Another bumper rate hike
In August this year, the central bank increased the base rate by the highest level in 27 years with a 0.5% increase. Another 0.5% increase followed in September, and there was speculation November’s hike could be as high as 1%.
However, following the appointment of the new PM, analysts have downgraded their forecasts from 1% to 0.75%. While this is lower than initial predictions, it still marks another bumper rate increase and the most significant hike in over three decades.