Connect with us


Bank of England raises interest rate to highest in 14 years.

To halt the skyrocketing cost of living, interest rates have been raised to their highest level in 14 years.



Bank of England raises interest rate to highest in 14 years.

To halt the skyrocketing cost of living, interest rates have been raised to their highest level in 14 years.

The Bank of England decided to increase rates from 4% to 4.25% after data revealed that the cost of living had risen more than anticipated.

Last month, prices increased more quickly than anticipated due to a significant increase in the price of food.

The rate increase occurs despite ongoing concerns about the global financial system following the failure of two US banks.

The Bank has been gradually raising interest rates to combat the rising cost of living.

The pace of price growth, or inflation, is very close to its highest level in 40 years and is more than five times what it should be.

In response to “unexpectedly” rising inflation, the Bank raised its benchmark rate to a 14-year high. However, it added that price increases were “likely to decrease rapidly throughout the rest of the year.”

With a vote of seven to two, the rate-setting Monetary Policy Committee approved the most recent increase, with the Bank noting that “cost and price pressures have remained strong.”

That implies that some homeowners’ mortgage costs would increase and that some savers would have access to better profits.

The Bank emphasized that the “evolution of the economy,” including the effects of its recent interest rate hikes, would determine how much inflation eases in the coming months.

Yet the Bank stated that the UK was no longer entering an immediate recession and added that the UK economy was anticipated to increase “slightly” in the following months rather than contracting as originally predicted, in line with the government’s official independent forecaster.

The Bank of England is showing signals of slowing down rate increases, and today’s quarter-point growth may be the last. Previously, increases were occurring at a half-percentage-point clip. Due to Budgetary initiatives, inflation will now decline more quickly than anticipated.

The Bank reaffirmed its earlier statement that additional increases would be necessary “if there were signs” of increased inflationary pressures. Even after yesterday’s shocking inflation report, the Bank’s talks suggested that some of this pressure, such as that from wage increases, was waning. A pause in rate increases could be supported by updated quarterly predictions for the economy and inflation, which could be presented at the next meeting in May.

There are worries about how the world’s financial fragility may affect the British economy, even if it is doing better than projected. A predicted recession is now expected to be avoided. The UK is still tenacious. Yet that is another concern that hangs over the Bank’s choices, and it brings back memories of the raises that the Bank made that were swiftly reversed even after the credit crunch began in 2007.

Despite the new cloud, there is some encouraging news regarding the UK economy here. The consumer appears to have a higher tolerance for a strong energy shock. Right now, no increase in unemployment is anticipated. Although if the economy is still flat, it could have been far worse given the magnitude of the energy shock.

Since the failure of Silicon Valley Bank in the US and the lead-up to UBS’s state-backed acquisition of struggling Swiss bank Credit Suisse, the Bank stated in its report that there had been “large and unpredictable changes in global financial markets.”

The Bank stated, “The economy has been subject to a series of substantial and overlapping disturbances.”

However, it stated that the UK banking system was still “resilient despite the recent upheaval.”

The Bank warned that additional interest rate increases could be forthcoming if inflation continued but added that the rate of price increases was “still expected” to slow significantly in 2023, in large part because the government extended energy bill support to households in the Budget to maintain typical household bills at £2,500 per year, as well as falls to wholesale gas prices.

Inflation, according to economists, will decline in the upcoming months as energy costs decrease as the weather warms.

With prices rising by 10.4% in the year to February, the UK currently has the highest inflation rate among the major nations, as opposed to the US and the Eurozone, where it has dropped to 6% and 8.5%, respectively.
The Bank even went so far as to predict that by the end of this year, energy costs’ impact on overall inflation will “become negative.” The critical factor over the past year has been the high energy cost, with gas and oil prices increasing in the wake of Russia’s invasion of Ukraine.

Yet, other issues, including a lack of workers and rising food prices, have also contributed to price increases.

On Wednesday, official statistics showed that shortages of lettuce and vegetables were to blame for the latest increase in the UK’s inflation rate.

The food inflation rate just exceeded 18.2%, the highest level in 45 years.

Source: BBC News

Continue Reading