Tuesday, 21 May 2024

Bank of England hikes interest rates to 4.5% – its highest level since 2008

The Bank of England has increased interest rates to 4.5%.

Seven members of the Bank’s Monetary Policy Committee (MPC) voted to increase the base interest rate for a 12th consecutive time from 4.25% to 4.5% – its highest level since 2008.

Food prices have stayed higher for longer than expected, the Bank said, partly due to Russia’s war in Ukraine and poor harvests in some European countries, ramping up the cost of living for households across the UK.

It means Consumer Prices Index (CPI) inflation is expected to decline less rapidly than the Bank predicted in its last report in February.

Inflation is still expected to drop sharply from April this year, as energy prices decline and household bills are subsidised, the MPC said.

‘There remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target,’ it added.

Inflation is expected to decline to 5.1% in the fourth quarter of the year, meaning the Government would narrowly hit its target to halve inflation by the end of the year.

The Bank had previously thought CPI inflation could fall as low as 1% by the middle of 2024 but it is now predicted to reach around 3.4%.

The hike to the interest rate will pile more pressure on borrowers and help the Bank to bring inflation down to the 2% target.

But the impact of higher rates has yet to be widely felt for households across the country, partly because many borrowers are tied to fixed-rate mortgages that have not renewed yet.

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