Rates to go up – and more pain may be on way
Homeowners will see rates rise for 12th time in 18 months β and have been warned they could rise up to 5% in December
- Bank expected to raise interest rate from 4.25% to 4.5% to curb inflation
- It represents an increase of 4.4 percentage points since December 2021
- It marks the strongest increase since 1989
Homeowners will see rates rise this week for the 12th time in 18 months β and have been warned they could rise as much as 5 percent by December.
The Bank of England is expected to raise interest rates from 4.25 percent to 4.5 percent on Thursday to curb inflation.
It represents an increase of 4.4 percentage points since December 2021 β the strongest increase since 1989.
There were hopes that this increase would be the latest in a series of increases by the Bank – especially since the US Federal Reserve hinted that it would interrupt its own aggressive stance.
But economists have warned that if inflation β currently at 10.1 per cent in the UK β remains high, further action will need to be taken.
Rise: Analysts at Capital Economics think interest rates could rise as high as 5 percent if inflation continues to rise
Prices have not fallen as fast as the Bank had hoped β they missed the 9.8 percent expected in March.
Analysts at Capital Economics think interest rates could rise as high as 5 percent if inflation continues to rise. This means even more misery for homeowners.
Laith Khalaf, head of investment analysis at AJ Bell, said inflation is “firmer than expected,” meaning a 5 percent base rate is achievable in the year ahead.
However, he said the ongoing turmoil in the global banking sector would help cool the economy and potentially reduce the need to raise interest rates significantly.
The US Federal Reserve raised its key interest rate by 0.25 percentage point last week, bringing the reference rate to between 5 percent and 5.25 percent. It’s the highest level in 16 years. But the Fed hinted it was ready to halt its aggressive path amid a string of bank failures and a budget deadlock in Washington.
A number of medium-sized US banks, including Silicon Valley Bank, Signature Bank and First Republic, have collapsed or been taken over in recent months.
Fed Chairman Jerome Powell said a decision had not yet been made on whether to pause or not, but that his comments seemed to miss the earlier insistence that there was still more to do. “We are ready to do more if more monetary restraint is warranted,” he said.
The European Central Bank (ECB) also recently raised interest rates by 0.25 percentage point to 3.25 percent. Eurozone inflation is at 7 percent β more than triple the ECB’s target rate of 2 percent.