Will the Bank of England take interest rates to a new 13-year high? - InterestRate.co.uk
Bank of England

Will the Bank of England take interest rates to a new 13-year high?

Interest rates in the UK have risen to their highest level in 13 years after the Bank of England increased the base rate to 1%. However, many believe the bank will raise the base rate to a fresh 13-year high this week by increasing it to 1.25%.

This comes after three members of the nine-person Monetary Policy Committee had already voted to increase the rate to 1.25% last month. However, with soaring inflation continuing to cause issues across the UK, the bank is expected to take the necessary steps to try and tackle inflationary pressures with a further rate increase. The MPC will announce its decision on Thursday lunchtime.

financial hesitation

No room for hesitation

Industry experts have warned that with inflation already at its highest level in many decades, the MPC has no room for hesitation regarding interest rates. This, they said, could have a massive impact on motorists by resulting in even higher prices on petrol. The cost of filling up the average tank for a family car has already hit record highs of over £100.

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Laith Khalaf, head of investment analysis, AJ Bell, said, “The Bank of England faces a stern test of its mettle at the next interest rate decision, and any hesitation is likely to result in the pound being punished on the currency markets.”

It was pointed out that the MPC had voted for interest rate increases at each of the last four meetings, and this is another factor that is swaying opinion regarding a further rate increase this week.

The economy in the UK is already struggling. According to a forecast from the OECD (Organization for Economic Cooperation and Development), the UK’s economy will see the slowest growth of developed countries, with expectations of 3.6% growth this year and 0% next year.

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Economy in UK

Referring to the OECD report, Rachel Reeves, Labour’s shadow chancellor, said, “That economic growth in the UK will grind to a halt next year, with only Russia performing worse than us in the G20, is a shameful indictment of the chaos and incoherence of this Conservative government. Labour would create a more secure economy by spending wisely, taxing fairly, and getting the economy firing on all cylinders.”

In the meantime, Mr Khalaf said that by increasing interest rates, the central bank was putting the brakes on an economy that was already slowing down. He said that this heightened the risk of the economy stalling or even going into reverse.

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It is not just experts who expect interest rates to continue rising but also a large proportion of the general public. A recent survey commissioned by the Bank of England showed that 70% of people expect interest rates to rise over the coming year.

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