15 year high… and counting
The Bank of England (BoE) announced another increase in its base rate, from 5% to 5.25%, the highest level in over 15 years as of 3rd August 2023. This is the 14th consecutive rise since December 2021, when the BoE started to tighten monetary policy in response to rising inflation.
The Bank said that inflation, which fell to 7.9% in June, remained well above its 2% target and that further action was needed to bring it down. It also cited the risks posed by the global economic situation, especially the conflict in Ukraine and the slowdown in China.
Affect on borrowers
The rate hike will affect millions of borrowers and savers across the UK. Fixed-rate mortgages will not change until the end of their term, but new deals will be hit borrowers hard. Savers may see some benefit from higher interest rates, but only if banks and building societies pass on the increase, which they are slow to do.
Bear in mind that for the past 15 years many have benefitted from ultra low interest rates and cheap money, this is not the ‘norm’. And now, as more ‘normal’ interest rates return it will initially disrupt financial stability for some, and it will be difficult for many for a time. But money has been cheap and mortgages have always been the cheapest way to borrow long term and that is still the case – even if it doesn’t feel like it right now.
Expected
The Bank of England’s decision was widely expected by market analysts, but some have warned that further rate rises could damage the UK economy, which is already showing signs of weakness. House prices are falling, manufacturing activity is contracting and consumer confidence is low.
The prime minister, Rishi Sunak, said he was disappointed that inflation was not falling faster, but claimed that he was making progress and that there was ‘light at the end of the tunnel‘.
And a train too if he isn’t careful!
UK has the highest interest rate in the G7
Interest rates have been increasing across the world in recent months.
The Bank of England’s latest rate hike means the UK now has the highest rates in the G7 – a group of the world’s seven largest so-called ‘advanced’ economies.
That’s higher than France, Germany, Italy, Japan, Canada and the U.S.
If you think the UK’s got it bad, spare a thought for these countries where interest rates are rampant
- Zimbabwe: 95%
- Argentina: 97%
- Ghana: 30%
- Malawi: 24%
- Iran: 23%
- Turkey: 10.50%
Let’s not talk about inflation, just yet…