Bank of England is set to hike rates to battle inflation. That means pain for borrowers

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LONDON (AP) — The Bank of England is preparing to raise borrowing costs again on Thursday to combat stubbornly high inflation, which has failed to come off its peak as quickly as expected.

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Although the consensus among analysts is that the central bank will raise its key interest rate by a quarter of a percentage point – to a new 15-year high of 4.75% – there are concerns, certainly among borrowers, that it may opt for the larger halving. Point increase.

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This larger hike will be particularly painful for people with loans, especially the 1.4 million or so households in the UK who will have to refinance their mortgages over the course of the year.

Central banks around the world, from the US Federal Reserve to the European Central Bank, quickly raised interest rates to lower inflation stoked first by supply-chain support linked to the recovery from the pandemic and then by Russia’s invasion of Ukraine.

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Turkey’s central bank was also expected to raise interest rates on Thursday, which could signal a shift from unusual economic policies.

For the Bank of England, there were hopes that it might pause in the cycle of rate hikes if inflation shows clear signs of slowing.

But no longer.

Figures on Wednesday showed that UK inflation unexpectedly held steady at 8.7% in the year to May after expectations for a modest decline to 8.4%. While that’s down from 11.1% last October, its highest level since the early 1980s, the bank wants it at 2%.

Price increases take time to work, but recent economic figures indicate that high inflation has not fallen as hoped and has become embedded in the economy through higher wages and the prices people pay for services, such as eating out or going to the movies.

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“Steady inflation is extending the cost of living crisis for everyone in Britain and exacerbating the mortgage crisis for the seven million households who have a mortgage,” said James Smith, director of research at the economic think-tank Resolution.

Higher interest rates help lower inflation by making it more expensive for individuals and businesses to borrow, which means they can spend less, reducing demand and putting pressure on prices.

This clearly comes at a cost, and there are concerns about the outlook for the British economy, which has so far avoided slipping into recession even as the European economy contracted slightly in the six months to March.

“Workers are suffering the most real cutbacks in living memory, and enormous economic damage is being done because people can’t pay the bills,” said Gary Smith, general secretary of the GMB trade union.

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