The Bank of England base rate now stands at 4.5%, with 0.25% increases seen in both April and May 2023.
The May increase marked the 12th consecutive hike amid the Bank’s continuing efforts to control inflation but this is being hindered by record food prices, which saw a 19% jump in the 12 months to March 2023.* (Source: The Office for National Statistics)
Borrowing rates are now at their highest level in almost 15 years.
Why does the Bank of England raise interest rates?
The Consumer Prices Index, which rose by 10.1% in the 12 months to March 2023 (down from 10.4% in February) is five times over the Bank of England’s target of 2%. By increasing interest rates, central banks can try to reduce the rate of inflation. This leads to consumers having less surplus income to spend on good and services, which should in turn lead to lower prices. However, at the present time, consumers are still facing record high prices which has caused some to question whether further increases will be effective in the current economic climate.
What’s the outlook for the Bank of England base rate?
Financial markets are predicting further rises with rates expected to hit 5% before the end of the year.
The expected fall in energy prices from July is welcome news to UK households but anyone coming to the end of a fixed rate mortgage in the coming months is going to feel the increase in their monthly repayments.
