This Thursday 23rd March the Bank Of Englands Monetary Policy Committee (MPC) meet to decide if they need to raise interest rates again. There is a lot of speculation of what the outcome will be, its looking like there is a 50/50 chance of another rate rise. Lets look at the data and discuss how likely are the Bank Of England to raise rates again.
Bank of England Considers Raising Interest Rates Amidst Lingering Inflation and Strong UK Economy
The biggest reason Interest Rates might rise is due to lingering inflation. The latest figures show inflation is still above 10% and not coming down fast enough. This is the highest inflation has been in over a decade and well above the banks target of 2%. The BOE has increased rates for 10 consecutive months but that has not bought down inflation fast enough.
Raising rates again will make borrowing more expensive, this will cool down the economy and the pressure of inflation.
Another reason the Bank Of England may raise rates again is the strength of the UK economy. It was expected the UK would be a in long recession, but now it is likely the UK might avoid a recession altogether. Unemployment stays low and this shows a picture the UK economy is much stronger than was initially expected.
Growing Case Against Interest Rate Rises:
In the last 2 weeks the case has grown against interest rate rises. Banks have started to feel the pain of the last interest rate rises and a few have had to have bailouts (Silicon Valley Bank).
Not only that rate rises are having a huge impact on households and business owners who are already struggling with huge amounts of debt. Raising rates would increase the cost of borrowing for mortgages, loans and credit cards. That would lead to more defaults and bankruptcies and would slow down consumer spending and push us into a recession.
Another argument against is how volatile the global economy currently is. With lots of geopolitical tensions and businesses only just getting back on their feet after the pandemic a number of analysts feel raising rates would do a lot more harm than good.
Rate rises will also mean landlords will pass on increased costs to already stretched renters. Rents have been rising at record pace due to lack of rental stock as well as increased interest rates and more costs incurred by landlords.
How Will It Affect Borrowers, Savers, and the UK Economy?
If the Bank Of England do decide to raise interest rates this week, it would be an unprecedented 11th rise in a row. The immediate impact would be felt by borrowers and savers, as banks and lenders adjust their rates accordingly. Mortgages would be hit hard with variable and tracker rates getting immediate increase making them much more expensive.
This would impact affordability and purchasing power for a lot of households, on the flip side savers could benefit from a higher return on their deposits if the rises are passed onto them.
A rate rise is going to have an impact on the economy as a whole, it will impact consumer confidence and make it a lot more challenging for businesses. It will lead to a slowdown in spending as consumers will become much more cautious on what they spend their money on.
We can’t control if the Bank Of England decide to increase rates again this week, there is a lot of difficult decisions that need to be made. What is more important bringing down inflation or making the banking sector more stable. Whatever they decide will have long term implications on the UK economy we hope whatever they decide causes as little impact on peoples lives as possible.