The Bank of England increased interest rates for the 11th time in a row after an unexpected resurgence in UK inflation.
The Bank’s Monetary Policy Committee (MPC) decided to increase interest rates to 4.25% from 4%, just a day after the US Federal Reserve raised its key overnight interest rate by a quarter of a percentage point.
At its meeting yesterday, the MPC voted 7–2 in favour of increasing the rate by 0.25 percentage points. Two members wanted the Bank to maintain the previous rate of 4%.
The rise, which was widely predicted by economists and investors, is the 11th consecutive increase by the Bank of England since December 2021.
The Bank said they expect the economy to grow slightly in the second quarter of the year, marking a reversal of the 0.4% decline in gross domestic product (GDP) the Bank had anticipated last month.
It also said that innflation is set to come back down this year despite a surprise increase in Consumer Prices Index (CPI) inflation last month, to 10.4% from 10.1% in January, driven by surging food and drink prices.
The rate rise will pile yet more pressure on borrowers, already under strain from the cost-of-living crisis.
Adrian Anderson, Director of property finance specialists, Anderson Harris, said: “Mortgage holders hoping that the Bank of England would pause the interest rate rises were dealt a blow yesterday by the surprise leap in inflation to 10.4% in February 2023.
“Today’s rate rise to 4.25% is consistent with the Bank of England’s plan to battle inflation but it means no gain, just more pain for mortgage holders who are already squeezed.
“This will be particularly challenging for homeowners who have chosen to take a variable rate mortgage in the short-term, in the hope that inflation reduces and they can select a lower longer term fixed rate than what is available now.”
The rate hike follows the collapse of the US’s Silicon Valley Bank and the historic rescue takeover of Credit Suisse, with both events sending shockwaves through the financial markets and sparking fears of a global banking crisis.
It also threw into question whether higher interest rates are putting too much pressure on smaller lenders, which could be buckling under the weight of losses on their investments.
Source: independent.co.uk