The Bank of England raised interest rates by a quarter of a percentage point to 4.5% amid growing concerns about persistently high inflation in the UK.
The bank’s Monetary Policy Committee voted by a majority on its 12th successive increase in borrowing costs, continuing the most aggressive rate-raising cycle since the 1980s in a bid to rein in UK inflation that remains in the double digits.
UK rates are at their highest level since October 2008, when the global economy was in the grip of the financial crisis.
The interest rate decision comes against the backdrop of rising inflation, with a modest drop in the annual rate to 10.1% in March, leaving the UK with the highest rate in the Group of Seven major advanced economies. The Bank of England’s official inflation target is 2%.
With food prices rising at the fastest annual rate since 1977, economists have warned that Britain risks inflation remaining at high levels this year, a development that could embarrass Rishi Sunak, whose stated aim is to cut inflation in half this year.
The BoE’s hike comes after the US Federal Reserve raised its benchmark interest rate by a quarter point to a range of 5% to 5.25% last week. The European Central Bank also raised its main interest rate by a quarter of a point, to 3.25%.
Following the announcement, Mike Randall, CEO of Simply Asset Finance, commented: “Another hike in interest rates is a stark reminder that we are not out of the dangers of hyperinflation just yet. While the drop in inflation in March shows signs the BoE’s tightening cycle is beginning to bear fruit Pays off, we can’t dismiss the fact that companies still face higher rates of inflation and benefits combined, which continues to hamper their growth.
“For small businesses, it is another financial blow to contend with after a difficult trading month of bank holidays, but studies show leaders remain as resilient as ever. 71% of UK SMEs remain confident of business success, and 58% expect Increase revenue in the next quarter, according to Sage and Barclays.For small and medium businesses, it is business as usual, but since industries such as manufacturing require long-term strategies to ensure their success in the future, it will be necessary to consider how to reduce the impact of this high inflation environment on companies “.
Paul Heywood, chief data and analytics officer at Equifax UK, added: “The Bank of England continued its run of remarkably consistent rises in the underlying rate with another quarter-percent increase today. While this consistency may have played a role in increasing business and consumer confidence month-on-month in 2023; Consumers will likely find themselves in a icing on the cake as the realities of rising borrowing costs and shrinking wages hit home.
“As interest rates rise, we expect more ‘mortgage shocks’ in the next six months – 1.4 million consumers will experience a 50% increase in mortgage payments. This shock may force consumers into higher-cost short-term credit to meet existing debt obligations, which is A downward spiral that Equifax and our lending partners are working hard to identify and prevent. We will continue to ensure consumers are effectively supported throughout their borrowing journey and can access the credit they need to live their best financially.”