UK headline inflation rate falls to lowest in three years but comes in hotter than expected

The April inflation came in higher than anticipated, falling to 2.3%, as reported by the Office for National Statistics on Wednesday 22nd May 2024.

Traders have now reduced their expectations of a June interest rate cut by the Bank of England (BoE). Markets reacted negatively in early trading.

The headline inflation rate decreased from 3.2% in March, marking the first instance since July 2021 that inflation has fallen below 3%, nearing the Bank of England’s target of 2%.

Contrary to the predictions of economists surveyed by Reuters, who expected a more significant drop to 2.1%, services inflation – a critical indicator monitored by the BOE due to its significance in the UK economy and as a gauge of domestically generated price increases – only fell marginally to 5.9% from 6%, missing the anticipated 5.5% from the BOE.

Core inflation, which excludes energy, food, alcohol, and tobacco, decreased to 3.9% in April from 4.2% in March.

The substantial decline in the headline rate was largely anticipated due to the year-on-year decrease in energy prices. However, investors shifted their attention to core and services inflation following indications from BOE policymakers of a potential interest rate cut later in the summer, contingent on new data.

After the data release, the market-makers probability of a June rate cut plummeted to 15% from 50% and the chance of an August cut also fell to 40% from 70%.

Lingering concerns over underlying inflationary pressures mean a June rate cut is unlikely. However, these figures may convince more rate setters to vote to ease policy, providing a signal that a summer rate cut is still a possibility.

May 9, 2024September 12, 2025

UK interest rate held at a 16-year high as Bank of England holds rates at 5.25%

The decision comes as inflation, which measures price rises over a period of time, remains above the Bank’s 2% target at 3.2%. But bank says cuts are coming.

Is the 2% target still a sensible benchmark?

The 2% inflation target set by central banks has been a widely adopted benchmark for monetary policy.

History

The 2% inflation target became prominent in the 1990s and early 2000s. Central banks, such as the Federal Reserve and the Bank of England, have aimed to maintain inflation at this level.

The Federal Reserve has typically pursued an inflation rate of about 2% since 1996.

In January 2012, then-Fed Chairman Ben Bernanke formally established the 2% target, and subsequent Fed chairs have continued to endorse this rate as the preferred level of inflation.

Why the 2% target?

Price stability

The 2% inflation target was selected as it provides a balance between preventing problematic inflation and avoiding damaging deflation. Does it work?

Avoiding deflation

Deflation, characterized by falling prices, can hinder economic growth. Central banks target a 2% inflation rate to avert deflation and ensure stability.

Creditor-Debtor compromise

The 2% inflation target represents a balance between creditors’ preference for lower inflation and debtors’ inclination towards higher inflation.

Challenges

Changing economic environment

In recent years, the global economy has encountered distinct challenges, including sluggish growth, technological upheavals, and demographic changes. Consequently, there is a debate on whether the 2% inflation target requires reassessment.

Persistently low inflation

Despite the efforts of central banks, inflation has persisted below the 2% mark in numerous advanced economies, sparking debates over the potential need to modify the target.

Trade-offs

Aiming for a 2% inflation rate can occasionally clash with other policy objectives, like employment or financial stability. It’s crucial for central banks to judiciously manage these competing priorities.

Revision

Several central banks are revising their strategies. For example, the European Central Bank (ECB) has adopted a more adaptable inflation target, permitting temporary exceedances to balance out extended periods of below-target inflation.

The Bank of England also considers broader economic factors when setting policy, rather than rigidly adhering to the 2% target.

IIn summary, although the 2% inflation target has been a helpful benchmark, central banks are progressively willing to adjust their strategies in response to evolving economic conditions. The current debate focuses on striking an optimal balance between stability, growth, and adaptability.

Central banks saw this period of inflation as ‘transitory’ – it wasn’t. It could be argued that their lack of action led to a bigger inflation problem overall.

May 7, 2024September 12, 2025

FTSE 100 in record territory

The FTSE 100 soared past 8300, reaching a new record high amid busy trading as London markets reopened after the bank holiday.

A catch-up trading session is evident, with mainland-listed stocks having a robust session on Monday 7th May 2024 and continuing to rise. The FTSE reached around 8335 in intraday trading.

Wall Street also experienced another positive session, with the Dow Jones climbing for the fourth consecutive day following the Federal Reserve’s less aggressive stance, and the S&P 500 gaining too. Despite mixed results, earnings have bolstered risk appetite. The low U.S. job count has encouraged traders/investors to take heart that rate cuts will be on the agenda again soon, even if they are now late.

Bank of England

Attention will now turn to the Bank of England (BoE), which faces a decision on whether to guide the market towards a rate cut – the first in four years – or to exercise more patience. The consensus is that it’s premature for a cut this week, with August 2024 being the more likely date, although the Monetary Policy Committee’s (MPC) opinions vary.

Last month the Deputy Governor of the BoE, indicated his readiness to vote for a rate cut with little additional evidence of declining inflation, highlighting the ‘downside risks’ to the BoE’s February inflation forecast. In contrast, the Bank of England’s Chief Economist, expressed a more cautious stance in April regarding the initiation of rate cuts.

Inflation

Inflation is on a downward trajectory, expected to return to 2% in the next few months. CPI decreased from 3.4% to 3.2% between February and March 2024, and core inflation dropped from 4.5% to 4.2%. However, the BoE is likely to await April’s data before taking any decision.

Persistent wage growth of around 6% indicates continued strength in the labour market. Financial markets anticipate a Bank of England rate cut by August 2024, but it is believed the BoE may be prepared to act as early as June 2024, aligning with the anticipated policy move by the ECB.

April 17, 2024September 12, 2025

Bank of England school report: must try harder – a brutal analysis of ‘out of date’ systems

The Bank of England (BoE) stands as a bastion of economic stability, guiding the United Kingdom through the ebbs and flows of financial tides.

Modernising the Bank of England’s forecasting system has become a critical necessity. A recent independent review has cast a spotlight on the ‘serious deficiencies’ within its economic forecasting system, calling for an urgent modernisation.

Out of date forecasting methods

What have they all been doing for all these years to not have updated their systems?

The review, led by Dr. Ben Bernanke, a former chair of the U.S. Federal Reserve, paints a picture of an institution grappling with outdated systems and under-investment in critical infrastructure. The Bank’s staff, the report suggests, are hindered by software that is not just out-of-date but also complicates the already intricate task of economic forecasting.

This revelation comes at a time when accurate economic forecasting is more vital than ever. The world is still reeling from the effects of the pandemic, the 2008/2009 financial crisis and the UK faces unique challenges post-Brexit. The Bank’s ability to predict economic trends accurately is paramount in crafting policies that safeguard the nation’s financial health.

Deficiencies

The deficiencies highlighted are not just a matter of outdated software; they reflect a deeper need for a paradigm shift in how economic data is handled and analysed. The report recommends a complete overhaul of the system, emphasizing the need for automation of tasks that are currently performed manually.

Governor Andrew Bailey’s reportedly responded to the review by acknowledging the gravity of the situation, stating that updating the Bank’s systems is a ‘high priority’. This commitment to modernisation is a step in the right direction, but it should be followed by swift and decisive action, surely.

A broken compass?

The Bank of England’s forecasting system is more than a tool; it is the compass by which the nation navigates its economic future. Modernising this system is not just a recommendation; it is an imperative. As the UK charts its course in a rapidly changing global economy, the reliability and sophistication of its economic forecasting are not just beneficial but essential for continued prosperity.

In conclusion, the Bank of England’s economic forecasting system is at a crossroads. The call to modernise is clear, and the path forward must be paved with innovation, investment, and a steadfast commitment to excellence in economic stewardship.

The future of the UK’s economy depends on it.

March 20, 2024September 12, 2025

UK inflation down to 3.4% in February 2024

In February 2024, inflation decreased to 3.4%, a decline from January’s 4%, moving closer to the Bank of England’s self-imposed target of 2%

This reduction signifies that the cost of living is increasing at its least rapid rate since September 2021, when it was recorded at 3.1%.

Since reaching a peak of 11.1% in October 2022, the highest in 40 years, inflation has been on a steady decline. In the big inflation picture, that’s a pretty good result.

It has only taken around 16 months to move the rate from 11.1% (a 40-year high) down to just 1.4% above the BoE’s target of 2%.

The primary factor contributing to this decrease, as reported by the Office for National Statistics (ONS), is the deceleration of food price inflation.

February 1, 2024September 12, 2025

Bank of England holds interest rate at 5.25%

UK interest rates have been left unchanged at 5.25% by the Bank of England as widely expected by commentators.

It is the fourth time in a row the Bank has held rates at 5.25%.

The Bank of England had previously raised rates 14 times in a row to curb inflation, leading to increases in mortgage rates but also creating better rates for savers.

Interest rate chart from 2007 to January 2024 demonstrates just how low interest were between 2009 and 2022

Attitude shift

There is a noticeable shift in opinion as the committee entertained the possibility of discussing the feasibility of cuts.

There was a three-way split, with two members of the Monetary Policy Committee (MPC) voting to increase the bank rate to 5.5%; one to reduce it to 5%; and six were in favour of sticking with 5.25%.

With inflation falling it is very likely the interest rates will be reduced by 0.25% by March 2024. Just take a look at the reduction in savers rates that have already occurred.

The anticipation is for a rate reduction soon.

The clue is that savers rates are being cut.

But

The Bank of England Governor, Andrew Bailey, has made clear that for him the key question is: ‘For how long should we keep rates at the current level?’

There may be disappointment ahead then – but a rate cut is next and I still expect it by Easter.

February 1, 2024September 12, 2025

Not so FINE at HSBC – £57.4m fine for depositor protection system failings

HSBC fined £57.4m by the Bank of England for ‘serious failings’ to protect customer deposits.

The bank failed to accurately identify deposits eligible for the UK’s Financial Services Compensation Scheme, the Bank’s Prudential Regulation Authority (PRA) announced.

HSBC was fined by the Bank of England’s Prudential Regulation Authority (PRA) for failing to properly implement the depositor protection rules, which are meant to safeguard customer deposits in case of a bank collapse.

Serious concerns

The PRA said the failings were ‘serious‘ and ‘materially undermined the firm’s readiness for resolution’. HSBC reportedly said it was pleased to have resolved the ‘historic matter’ and cooperated with the investigation. The ‘failings’ occurred between 2015 and 2022. The fine is the second highest to date imposed by the regulator.

Protected up to £85,000 per person per institution

Under the scheme, customer deposits are protected up to the value of £85,000.

Under depositor protection rules, banks must have systems and controls in place to make sure that financial information is logged correctly. This information is needed if the FSCS has to make payments to customers upon a bank collapse.

However, the PRA said HSBC Bank incorrectly marked 99% of its eligible beneficiary deposits as ‘ineligible’ for FSCS protection.

Unfortunately this episode doesn’t give me much faith in the banking system that is supposed to protect the ‘saver’. At least the PRA discovered the failings.

January 4, 2024September 12, 2025

UK mortgage rates fall in January 2024

Mortgage lenders have started 2024 by cutting interest rates.

The UK’s biggest lender, the Halifax, has cut some interest rates by nearly a full 1%, with other lenders expected to follow suit. HSBC has announced it will also make cuts in January.

Halifax is reducing its rates, with interest on a two-year fixed deal being cut by up to 0.83%. HSBC is due to reduce rates on its two-year fixed rate for remortgages (for someone with at least 40% equity in their home) falling below 4.5% for the first time since early June last year.

Mortgage rate chart October 2021 – January 2024

The Bank of England’s (BoE) benchmark interest rate has been held three times at 5.25%, analysts now expect the next move to be down.

December 14, 2023September 12, 2025

Bank of England holds interest rate at 5.25%

UK interest rates have been held at 5.25%. This is the third time in a row the Bank of England has opted to hold rates the same.

The decision, which was widely expected by financial markets, means borrowing costs will remain at their highest level for 15 years.

the Bank of England’s Monetary Policy Committee (MPC) voted 6-3 to keep rates at a 15-year high.

There was reportedly no discussion of cutting interest rates, and it’s still concerned that price rises might be stickier in the UK economy than in the U.S. or Eurozone.

The U.S. yesterday, 13th December 2023 indicated that 2024 could see three interest rate cuts. No such indication was forthcoming from the UK.

UK, U.S. and EU interest rates

December 5, 2023September 12, 2025

Britcoin the new UK digital pound planned

Britcoin is a potential British digital currency that would be issued by the Bank of England and backed by the Government.

It would be tied to the pound and have a stable value, unlike cryptocurrencies such as Bitcoin. It would be accessible through digital wallets and interchangeable with cash and bank deposits. The Treasury and the Bank of England are consulting on its launch, which could take place by 2030.

Britcoin could be used for everyday transactions, both in-store and online, and could make payments more efficient and enable innovation. However, some MPs have warned that Britcoin could cause severe financial damage and undermine the role of banks.

Some MPs have warned that Britcoin could cause severe financial damage and undermine the role of banks for several reasons.

Concerns about introducing a digital pound

Britcoin could increase the chance of bank runs, if customers were able to quickly and easily switch their bank deposits into digital pounds, especially during times of financial stress or panic. This could reduce the liquidity and solvency of banks and make them more vulnerable to failure.
Britcoin could also raise the cost of borrowing for banks and consumers, as banks would need to replace the funding that they would lose from deposits with more expensive sources. The Bank of England estimated that if 20% of bank deposits turned digital, it could result in a rise in interest rates on commercial loans.
Britcoin could pose risks to data privacy and security, as the government or third parties could potentially access, track, or control how users spend their digital funds. This could raise ethical and legal issues and require robust regulation and protection.

Britcoin could also have unintended consequences on the wider economy and society, such as affecting monetary policy, financial inclusion, innovation, and competition. The MPs said that the benefits and costs of Britcoin should be clearly evidenced before any decision is taken to introduce it.

The development of a state-backed ‘digital pound’ should proceed with caution, MPs have warned.

The benefits of the currency are still unclear and there must be systems in place to protect cash access and privacy, the Treasury Committee said in a report.

The Bank of England (BoE) and the Treasury have been consulting on the idea since February 2023. They are currently designing what such a system could look like. The CBDC would be directly issued by the Bank of England (BoE), just like banknotes.

This means people would have all the same safety and security that they have with their cash currently, which is different to cryptocurrencies that fluctuate in value and are generally run by private companies.

November 28, 2023September 12, 2025

Bank of England governor worried over UK growth outlook

Central Banks are struggling to catch-up with inflation

The governor of the Bank of England, Andrew Bailey has raised concerns over economic growth as he warned again that interest rates will not be cut in the ‘foreseeable future’.

The bank boss said he was concerned over the UK economy’s potential to grow. It comes after the government’s forecaster cut its growth outlook for the UK, due to high inflation, interest rates, energy and food price increases which were exacerbated by the Covid pandemic and Russia’s invasion of Ukraine.

Inflation, which is the rate consumer prices rise at, has dropped sharply in recent months, falling to 4.6% in the year to October largely as a result of lower energy prices.

However, it is still more than double the Bank of England’s 2% target and Mr Bailey warned lowering inflation further would be ‘hard work’.

Interest rates are currently at 5.25%, a 15-year high, which has pushed up borrowing and mortgage costs.

The Bank of England (BoE) failed abysmally to maintain inflation at 2%.

November 3, 2023September 12, 2025

UK holds interest rate at 5.25%

The Bank of England (BoE) announced its latest interest rate decision on Thursday, 2nd November 2023 to hold the bank rate at 5.25%.

The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted by a majority of 5-4 to maintain Bank Rate at 5.25%, the highest level in 15 years. However, four members preferred to increase the bank rate, to 5.5%.

The MPC also voted unanimously to reduce the stock of UK government bond purchases held for monetary policy purposes by £100 billion over the next twelve months, to a total of £658 billion.

The BoE’s decision was influenced by the weak economic outlook, the high inflation rate, and the uncertainty surrounding the Covid-19 pandemic and the Brexit saga.

The BoE said that the UK economy was likely to contract by 0.5% in Q3 2023, and that underlying growth in the second half of 2023 was also likely to be weaker than expected. The BoE also warned that there was a 50% chance of a recession in the next year (50/50). I think even I could guess with odds at 50/50.

2% target inflation to be hit by Q2 2025

The BoE also said that inflation, which was 6.7% in September 2023, was expected to peak at around 7% in Q4 2023, before falling back to the 2% target by 2025 Q2. The BoE said that the inflation spike was largely driven by temporary factors, such as higher energy and food prices, and that it would not respond to it.

The Bank of England was behind the curve calling it transitory. Can we trust any future forecasts?

The BoE’s decision was in line with the market expectations, as most analysts and investors had predicted that the BoE would keep rates on hold.

October 12, 2023September 12, 2025

UK debt costs now at 20 year high!

The interest the government pays on national debt has reached a 20-year high as the rate on 30-year bonds touches 5.05%.

A rise in the cost of borrowing comes at a difficult time for the chancellor, Jeremy Hunt, as he prepares for the autumn statement on 22nd November 2023. The chancellor has already made clear that tax cuts will not be announced in the autumn statement.

National debt £2,590,000,000,000

The total amount the UK government owes is called the national debt and it is currently about £2.59 trillion – £2,590,000,000,000.

The government borrows money by selling financial products called bonds. A bond is a promise to pay money in the future. Most require the borrower to make regular interest payments over the bond’s lifetime.

UK government bonds – known as ‘gilts’ – are normally considered very safe, with little risk the money will not be repaid. Gilts are mainly bought by financial institutions in the UK and abroad, such as pension funds, investment funds, banks and insurance companies.

QE

The Bank of England (BoE) has also bought hundreds of billions of pounds’ worth of government bonds in the past to support the economy, through a process called quantitative easing or QE.

A higher rate of interest on government debt will mean the chancellor will have to set aside more cash, to the tune of £23 billion to meet interest payments to the owners of bonds. This in-turn means the UK government may choose to spend less money on public services like healthcare and schools at a time when workers in key industries are demanding pay rises to match the cost of living.

Double debt

The current level of debt is more than double what was seen from the 1980s through to the financial crisis of 2008. The combination of the financial crash in 2007/8 and the Covid pandemic pushed the UK’s debt up from those historic lows to where it stands now. However, in relation to the size of the economy, today’s debt is still low compared with much of the last century.

The U.S, German and Italian borrowing costs also hit their highest levels for more than a decade as markets adjusted to the prospect of a long period of high interest rates and the need for governments around the world to borrow.

It follows an indication from global central banks, including the United States Federal Reserve and the Bank of England (BoE), that interest rates will stay ‘higher for longer’ to continue their jobs of bringing down inflation.

£111billion on debt interest in a year

During the last financial year, the government spent £111 billion on debt interest – more than it spent on education. Some economists fear the government is borrowing too much, at too great a cost. Others argue extra borrowing helps the economy grow faster – generating more tax revenue in the long run.

The Office for Budget Responsibility (OBR), has warned that public debt could soar as the population ages and tax income falls. In an ageing population, the proportion of people of working age drops, meaning the government takes less in tax while paying out more in pensions, welfare and healthcare services.

September 21, 2023September 12, 2025

Surprise! Bank of England hold rates steady at 5.25%

UK interest rates have been left unchanged at 5.25% by the Bank of England (BoE).

The decision comes a day after figures revealed an unexpected slowdown in UK nflation in August 2023.

The Bank had previously raised rates some14 times in a row to tackle inflation, leading to increases in mortgage payments, business loans and consumer borrowing. But it also delivered higher savings rates.

The inflation target for the Bank of England is 2%

The latest move raises the prospect that this cycle of rate increases may have peaked.

September 18, 2023September 12, 2025

Bank of England hits all-time confidence low

Confidence in Bank of England (BoE) is a measure of how much the public trusts the central bank to control inflation, set interest rates and maintain economic stability.

According to the latest Inflation ‘Attitudes Survey‘ conducted by the Bank of England in August 2023, confidence in Bank of England has plummeted to an all-time low.

Survey

The survey found that only 19% of the respondents were satisfied with the way the Bank of England was doing its job to set interest rates to control inflation, while 40% were dissatisfied. The net satisfaction rate was -21%, which is the lowest since the survey began in 1999.

2% inflation please

The main reason for the low confidence is the high inflation rate that has been persisting in the UK for more than a year. Inflation reached a peak of 11.1% in December 2022, and was still at 6.8% in July 2023, well above the Bank of England’s target of 2%. The Bank of England has raised interest rates 14 times since the end of 2021, from 0.1% to 5.25%, to try to bring inflation down, but this has also increased the cost of borrowing and living for many households and businesses.

Slow

Some critics have argued that the Bank of England (BoE) acted too slowly and too cautiously to raise interest rates when inflation was rising, while others have warned that raising rates too high and too fast could harm the economic recovery from the Covid-19 pandemic.

The public’s expectations of future inflation are also high, with a median answer of 2.9% for inflation in five years’ time, almost one percentage point higher than the Bank’s target.

Credibility

Confidence in Bank of England (BoE) is important because it affects how people behave in terms of spending, saving, investing, and borrowing.

Bank Governor — Bank of England hits all-time confidence low according to survey

Loss of faith

If people lose faith in the central bank’s ability to control inflation and maintain economic stability, they may act in ways that could worsen the situation, such as hoarding money, demanding higher wages, or taking on more debt.

Therefore, it is crucial for the Bank of England to communicate clearly and effectively with the public about its policies and actions, and to restore trust and confidence in its role as an independent and credible institution.

It is also useful to take notice of early warning signs, such as the economic red alert posed by inflation after the pandemic recovery started.

September 14, 2023September 12, 2025

UK mortgage arrears by value climbs

The value of UK mortgage arrears jumped by almost a third in April to June 2023 compared with the same period last year, according to the Bank of England (BoE).

Outstanding mortgage debt is now £16.9bn, the highest since 2016, it said.

Mortgage costs have risen for millions as the Bank has repeatedly hiked interest rates to slow soaring prices.

Some experts warn defaults will rise, but others say the number unable to repay remains relatively low.

According to the BoE, in April-June 16% of mortgages in arrears were new cases, which it said ‘was little changed compared to the previous quarter’.

It added that the proportion of mortgages in arrears was the highest since 2018.

See UK debt burden here

Debt burden – the value of UK mortgage arrears jumped by almost a third in April to June 2023

September 1, 2023September 12, 2025

UK house prices experience biggest yearly decline since 2009

The Nationwide Building Society says house prices are 5.3% lower compared to August last year, in the biggest annual decline since 2009.

Nationwide said the drop represented a fall of £14,600 on a typical home in the UK since house prices peaked in August 2022. It also said higher borrowing costs for buyers had led to a slowdown in activity in the housing market. Mortgage approvals are also about 20% below pre-Covid levels.

After 14 rate increases from the Bank of England – a two year fixed rate mortgage is now touching 6.7%

Since December 2021, the Bank of England (BoE) has raised interest rates 14 times in row in a bid to clamp down on rising inflation in the UK. The bank’s base rate now stands at 5.25%. This has led to lenders raising their mortgage rates, putting increased pressure on homebuyers.

The average two-year fixed mortgage rate on Friday was 6.7%, while the average five-year fix was 6.19%.

Average house prices in the UK peaked at £273,751 in August 2022 but fell to £259,153 last month.

August 7, 2023September 12, 2025

Bank of England says inflation rate 5% by Christmas 2023?

That’s still 3% above the target of 2%

The Bank of England’s forecasting, which has a major impact on the UK economy, is being reviewed and has been criticised.

After the Bank raised interest rates for a 14th time in a row in an effort to slow price rises in Augts 2023, officials have predicted inflation to fall from the current rate of 7.9%, to ‘around 5%‘ by the end of the year. The Bank puts rates up when they are concerned that too much spending will send prices spiralling.

So, in light of its estimating techniques being challenged, how much faith should we put in ‘5% by Christmas’?

For the last two years, the Bank of England has been underestimating the likely rate of inflation in the short term. MPs have been critical of the Bank’s forecast, and its officials have acknowledged they have got some judgements wrong in their forecasting.

The Central Bank has also announced a review into how it makes forecasts.

This was one of the questions put to the Bank of England governor

Mr Baron: Good morning, everyone. In looking at the bank rate going forward, some of us, it is fair to say, have long believed that central banks, including the Bank of England, have been well behind the curve with regard to inflation. As the Chair has said, forecasting has been awry. The Bank of England is one among others that has been too slow in raising interest rates, allowing inflation to mushroom well above the 2% target.

I have put it as strongly as suggesting that it has been a woeful neglect of duty. It is causing real pain out there for people and businesses. We should always remember, as we sit in our, sometimes, white ivory towers, having these debates, that we are talking about people’s lives and businesses that are having to grapple with double-digit inflation and interest rates perhaps going up too quickly. I think that you get it, but it is useful to remind ourselves of that.

Why should the public have confidence in your ability to get it right going forward? What lessons do you think that you have learned? What are you going to do differently? I am not hearing a satisfactory answer to that...

See the full report here – be prepared, it’s an acquired taste and a long read…

More wrong than right

However, some critics have argued that the BoE’s forecasts are often too optimistic or pessimistic, and that they fail to capture the impact of major shocks or structural changes in the economy. For example, the BoE was widely criticised for underestimating the severity of the 2008 financial crisis and overestimating the negative effects of Brexit on the economy. Some have also questioned the usefulness of the BoE’s forecasts for guiding monetary policy decisions, as they may be influenced by political or psychological factors.

Therefore, it may be wise to take the BoE’s forecasts with a grain of salt, and not to rely on them too much for making economic or financial decisions. The BoE’s forecasts are not useless, but they are not infallible either. They are one of many sources of information and analysis that can help us understand the state and prospects of the UK economy, but they should not be treated as gospel truth.

The Bank of England has been wrong with too many forecasts, so why bother? Target 2%, actual above 10%!

I rest my case.

August 5, 2023September 12, 2025

Hunt – caught in a trap

According to the chancellor Jeremy Hunt, the UK economy is caught in a trap

The UK and other advanced economies are facing a low-growth trap that is hard to escape. This means that the potential growth of the economy, which depends on factors such as productivity, innovation, investment, and labour force, is very low and insufficient to meet the demand and expectations of the people.

Brexit

The UK economy has been hit by huge global shocks that have disrupted its normal functioning and recovery. These include the Covid-19 pandemic, which caused lockdowns, restrictions, and health crises; the energy crisis, which led to soaring gas prices and supply shortages; and the Brexit transition, which created uncertainty and trade barriers.

Inflation

The UK economy is also struggling with high inflation, which erodes the purchasing power of consumers and businesses. Inflation is driven by various factors, such as rising energy costs, global supply chain bottlenecks, labour shortages, and pent-up demand.

The Bank of England has raised interest rates to 5.25% as of August 2023 – the highest level since 2008, to curb inflation and maintain price stability. The Bank of England inflation target is 2%.

The plan?

The chancellor reportedly has vowed to stick to the plan that he believes will bring down inflation and boost growth in the long term.

He said that he will unveil a plan in the autumn statement that will show how the UK can break out of the low-growth trap and become one of the most entrepreneurial economies in the world. He also said that he will not ‘veer around like a shopping trolley‘ and change course in response to short-term pressures.

August 3, 2023September 12, 2025

Bank of England raises interest rate by 0.25% to 5.25% – highest in the G7

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…

July 25, 2023September 12, 2025

There are two I’s in Inflation…

Interest rates and inflation in the UK

The UK is facing a cost of living crisis as inflation has soared to its highest level in decades. The Bank of England has raised interest rates 13 times since December 2021 in an attempt to bring inflation back down to its original target of 2%. But what does this mean for consumers, savers and borrowers?

What is inflation and why is it rising?

The current UK interest rate is now: 5.0%

Inflation is the term used to describe rising prices. How quickly prices go up is called the rate of inflation. Inflation affects the purchasing power of money, meaning that the same amount of money buys less goods and services over time.

The rate of inflation in the UK is measured by two main indicators: the consumer price index (CPI) and the retail price index (RPI). The CPI is based on a basket of products and services that people typically buy, while the RPI also includes mortgage interest payments.

According to the Office for National Statistics (ONS), the CPI inflation rate was 8.7% in the year to May 2023, while the RPI inflation rate was 11.4%. This means that on average, prices were 8.7% and 11.4% higher respectively than they were a year ago.

The main drivers of inflation in the UK are:

Energy bills: Wholesale gas prices have surged due to global supply disruptions since the pandemic hit in 2020, geopolitical tensions, the war in Ukraine and increased demand. The government introduced an energy price guarantee to freeze energy prices for six months, but prices still went up 27% in October 2022. The energy price guarantee has been extended.

Shortages: The pandemic and Brexit have caused labour and supply chain issues that have affected many sectors, such as food, clothing, construction and hospitality. This has led to higher costs and lower availability of some goods and services.

Demand: As the economy recovers from the lockdowns, consumer spending has picked up, especially on leisure and travel activities. This has increased the demand for some goods and services, pushing up their prices.

How do interest rates affect inflation?

Interest rates are the cost of borrowing money or the reward for saving money. The Bank of England sets the bank rate, which is the interest rate it charges to commercial banks that borrow from it. The bank rate influences other interest rates in the economy, such as mortgage rates, loan rates and savings rates.

Interest rates climbed ever higher as the Bank of England lost control of inflation

The Bank of England uses interest rates as a tool to control inflation. The Bank has a target to keep inflation at 2%, but the current rate is more than five times that. When inflation rises, the Bank increases interest rates to make borrowing more expensive and saving more attractive. This reduces the amount of money circulating in the economy and slows down rising prices.

The Bank has raised interest rates 13 times since December 2021, from 0.1% to 5.0%. This is the highest level since March 2009, when interest rates were cut to a record low of 0.5% following the global financial crisis.

What does higher inflation mean for your money?

Higher inflation means that your money loses value over time. For example, if you had £100 in April 2022 and inflation was 8.7%, you would need £108.70 in April 2023 to buy the same amount of goods and services.

Higher inflation also affects your income, spending, saving and borrowing decisions.

Income: If your income does not keep up with inflation, you will have less purchasing power and lower living standards. For example, if your salary was £30,000 in April 2022 and increased by 2% in April 2023, you would earn £30,600. But if inflation was 8.7%, you would need £32,610 to maintain your purchasing power.

Spending: Higher inflation may encourage you to spend more now rather than later, as you expect prices to rise further in the future. However, this may also reduce your savings and increase your debt.

Saving: Higher inflation reduces the real return on your savings, meaning that your savings grow slower than prices. For example, if you had £10,000 in a savings account that paid 1% interest in April 2022, you would have £10,100 in April 2023. But if inflation was 8.7%, your savings would be worth only £9,300 in real terms.

Borrowing: Higher interest rates make borrowing more expensive, meaning that you have to pay more interest on your loans and mortgages. For example, if you had a £200,000 mortgage with a 25-year term and a 2% interest rate in April 2022, your monthly payment would be £848. But if the interest rate rose to 4.5% in April 2023, your monthly payment would increase to £1,111. Mortgage interest rates hit 6% in July 2023.

How can you protect your money from inflation?

There are some steps you can take to protect your money from inflation, such as:

Review your budget: Track your income and expenses and see where you can cut costs or increase income. Try to save more and spend less, especially on non-essential items.

Shop around: Compare prices and deals for the goods and services you need or want. Look for discounts, vouchers and cashback offers. Switch providers or suppliers if you can find better value elsewhere.

Pay off debt: This is a priority! If you have high-interest debt, such as credit cards or overdrafts, try to pay it off as soon as possible. This will reduce the amount of interest you pay and free up more money for saving or investing.

Save smartly: Look for savings accounts or products that offer interest rates higher than inflation (tricky to find). Consider diversifying your savings into different types of assets, such as stocks, bonds, property or gold. These may offer higher returns than cash in the long term, but bear in mind they also carry more risk and volatility.

Invest wisely: If you have a long-term goal, such as retirement or buying a house, you may want to invest some of your money in the stock market or other assets that can grow faster than inflation. However, you should only invest what you can afford to lose and be prepared for the ups and downs of the market. You should also seek professional advice before making any investment decisions.

Conclusion

Inflation and interest rates are two important factors that affect the UK economy and your personal finances. The UK is currently experiencing high inflation due to various factors, such as energy prices, shortages and demand. The Bank of England has raised interest rates to try to bring inflation back down to its target of 2%. Higher inflation and interest rates have implications for your income, spending, saving and borrowing decisions. You can take some steps to protect your money from inflation, such as reviewing your budget, shopping around, paying off debt, saving smartly and investing wisely.

How well has the Bank of England done to keep inflation at or close to 2%?

See next article…

July 25, 2023September 12, 2025

Inflation in the UK is proving stubborn

UK inflation rate remains high at 8.7% in May 2023

The UK inflation rate remained at 8.7% in the year to May 2023, according to the latest official figures from the Office for National Statistics (ONS). This is the same rate that was recorded in April, but down from the 10.1% level seen in March.

The ONS said that rising prices for air travel, recreational and cultural goods and services, and second-hand cars resulted in the largest upward contributions to the annual inflation rate. However, these were offset by falling prices for motor fuel and food and non-alcoholic beverages.

The ONS also reported that core inflation, which excludes energy, food, alcohol and tobacco, rose to 7.1% in May, up from 6.8% in April, and the highest rate since March 1992.

‘I’m just taking this calculator thingy to my boss, I thought it might help’. ‘Well, good idea, guess it can’t make it any worse’.

High inflation is the fault of everyone else other than the central bank

The inflation rate is measured by the Consumer Prices Index (CPI), which tracks the changes in the cost of a basket of goods and services that are typically purchased by households. The CPIH, which includes owner occupiers’ housing costs, rose by 7.9% in the year to May, up from 7.8% in April.

The high inflation rate has been driven by a combination of factors, including supply chain disruptions, labour shortages, higher energy costs, and strong consumer demand as the economy recovers from the coronavirus pandemic.

The Bank of England has a target to keep inflation at 2%, but it has said that it expects inflation to rise further in the coming months before falling back next year. The Bank has also signalled that it may raise interest rates sooner than expected to curb inflationary pressures.

However, June’s inflation reading came in below economists expectations at 7.3% A small but welcome reversal of high UK inflation. UK inflation is higher than the EU and U.S.

Are central banks doing a good job at controlling inflation? Bear in mind the inflation target is 2%…

July 25, 2023September 12, 2025

Oh no, not again!

UK Interest rate 5% and rising

The current interest rate in the UK is 5% as of June 2023.

This is the Bank Rate set by the Bank of England (BoE), which influences the interest rates that other banks charge borrowers and pay savers. The BoE has raised the Bank Rate 13 times in a row from 0.1% to 5% in a bid to control inflation, which is the rate at which the prices of goods and services increase over time. The BoE has a target of keeping inflation at 2%, but the current inflation rate is 8.7%, which is much higher than the target. This means that the purchasing power of money is decreasing and people have to pay more for the same things.

Summary

The Bank of England has increased the base rate to 5% – up from 4.5% in June 2023
It’s a bigger increase than most forecasters expected
The last time the base rate was 5% or higher was in 2008
Higher interest rates are intended to lower inflation, by giving mortgage-holders and consumers less to spend
The government’s target is to have inflation down to 5% by the end of the year
Rishi Sunak said: ‘I always said this would be hard – and clearly it’s got harder over the past few months’ – I am totally, 100%, on it, and it’s going to be OK‘
Seven of the nine members of the bank’s committee voted for the 5% rate – two wanted no change at all

Bank of England mission statement

Promoting the good of the people of the United Kingdom by maintaining monetary and financial stability.

Well, the BoE has clearly done a good job here then with the UK interest rate now at 5%, again… and inflation at 8.7% after peaking at 11.1% in November 2022, a 41 year high! Great job!

And the UK PM said, ‘I always said this would be hard – and clearly it’s got harder over the past few months. I am totally, 100%, on it, and it’s going to be OK‘.

That’s good to know then – it’s going to be OK – so reassuring for borrowers! It’s going to be OK, so don’t worry!

Sorry PM, but that is so weak it’s bordering pathetic. Weren’t you the chancellor too?