The bank of England has decided to raise interest rate to combat inflation which has failed to come down from its peak as quickly as expected.
The central bank increasing it’s rate by a quarter percentage point reaching a new 15 year high of 4.75%. Borrowers are concerned that the central bank may opt for a bigger half point increase.
The recent hike in interest rate will certainly effect the 1.4 million or so households in the U.K. that will have to refinance their mortgages over the rest of the year.
Central banks across the globe from US Federal Reserves to European Central Bank are following a strategy of rapidly increasing the interest rates to fight the inflation that was first fueled by pandemic and then by Russia’s invasion of Ukraine.
Reports also suggests the Turkey’s Central Bank may also increase interest rates on Thursday which indicates a turnaround from unusual economic policies Turkey has been following.
The reason behind Bank of England’s decision to raise interest rates is the 8.7% inflation rate from May which was expected to be decreased slightly to 8.4% in June. While that is down from 11.1% last October, its highest level since the early 1980s, the bank wants it at 2%.
Higher interest rates help decrease inflation by making borrowing difficult for individuals and businesses, resulting in less spending which reduces demand and pressure on prices.
The recent development have raised concerns for British economy that have avoided falling into recession till date even when Europe’s economy contracted slightly in a six months period ended in Mar, 2023.
