Pressure on the Bank of England: A Closer Look at Interest Rate Hikes

(CTN News) – The Bank of England is facing increasing pressure as policymakers consider further interest rate hikes. In this article, we will explore the factors influencing the bank’s decisions and the potential impact on the UK economy. With the recent surprise hike in June, economists are keenly observing whether the bank will continue its streak of rate increases or signal an end to this prolonged cycle.

The 14th Consecutive Rate Hike

Most economists expect the Bank of England to raise the base rate by 0.25 percentage points in its upcoming decision. This would mark the 14th consecutive increase in interest rates. However, this time, the uplift is expected to be smaller compared to the significant 0.5 percentage point hike witnessed in June.

Inflation Slowdown Eases Pressure

Recent UK inflation data suggests a possible easing of pressure on the central bank. The Consumer Prices Index (CPI) inflation for June was reported at 7.9 per cent, down from 8.7 per cent in May, marking the lowest rate since March 2022.

The slowdown in price rises has prompted experts to believe that interest rates may not need to rise as high as initially feared. The Bank’s primary role in controlling inflation and aiming for a 2 per cent target may become more achievable with the recent slowdown in inflationary pressures.

Global Efforts to Tackle Inflation

In the broader context of global efforts to control rampant inflation, both the European Central Bank (ECB) and the US Federal Reserve have also hiked their respective interest rates to two-decade highs. Both central banks opted for a 0.25 percentage point increase, highlighting the seriousness of the ongoing inflationary challenges.

Projections for Interest Rate Hikes

Economists in the UK predict that a quarter-point increase in interest rates in August could bring it to 5.25 per cent, with indications of at least one more rate hike in the coming months. Some forecasts suggest the rates could peak at about 5.75 per cent by the end of the year. However, predictions vary among economists, with Andrew Goodwin from Oxford Economics suggesting that the present rate rise cycle could come to an end after the September increase.

Lloyds Banking Group’s Warning

The mounting pressure facing borrowers is evident as Lloyds Banking Group, the UK’s largest lender, warns its customers about potential consequences. Customers fixing their mortgage deals later this year may face an average increase of £360 in their monthly repayments. The uncertainty surrounding interest rates and their potential impact on mortgage repayments is a cause of concern for borrowers and the housing market.

Striking a Balance

The Bank of England is walking a tightrope in its efforts to tame inflation without causing instability in the housing market. Striking a delicate balance between controlling inflation and ensuring the stability of the housing market is a significant challenge faced by the Monetary Policy Committee.

Economic Forecasts and Conclusions

The Bank’s Monetary Policy Committee will release fresh economic forecasts alongside its rates decision. These forecasts will be closely watched by economists and financial markets alike as they seek insights into the bank’s future policies and the potential trajectory of interest rates.

In conclusion, the Bank of England faces the critical task of managing inflationary pressures through interest rate hikes while safeguarding the stability of the housing market and the broader economy. The recent slowdown in inflation offers some relief, but uncertainties remain as policymakers evaluate the appropriate course of action.