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Interest rates ‘at highest level by BoE since 2008’

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Interest rates at highest level since 2008

The Bank of England stated, as it raised interest rates for the twelfth time, that it expects UK inflation to decline more slowly than previously anticipated as food prices remain resolutely elevated.

In response to rising inflation, the Bank of England raised interest rates to their greatest level since 2008, prompting experts to predict an increase in mortgage rates.

The Monetary Policy Committee (MPC) of the Bank voted 7-1 to increase the base interest rate from 4.2% to 4.5%.

According to Thomas Jackson, Managing Director of Cooper Associates Mortgages, the increase will have an effect on the real estate market, as lenders have already begun to increase their interest rates.

He said: “This next increase will have further consequences on homeowners and home buyers. Anticipating today’s rise, mortgage lenders have already raised their rates.

“Those on tracker mortgages and standard variable rates (SVR), are likely to see their monthly payments increase. The average SVR is now above 7%, its highest since 2008. Those on fixed mortgages are ok for the time being but anyone due for remortgage soon should put talking to a mortgage adviser to the top of their list. “

The Bank reported that food prices have remained higher for longer than anticipated, in part due to Russia’s conflict in Ukraine and weak harvests in some European countries, thereby increasing the cost of living for British households.

Inflation as measured by the Consumer Price Index (CPI) is anticipated to decline at a slower rate than anticipated by the Bank in its February report.

Interest rates at highest level since 2008

As energy prices fall and household expenses are subsidised, the MPC predicts that inflation will continue to fall significantly from April onwards.

“There remain considerable uncertainties around the pace at which CPI inflation will return sustainably to the 2% target,” it added.

Inflation is anticipated to fall to 5.1% in the fourth quarter, allowing the government to narrowly meet its goal of halving inflation by year’s end.

Previously, the Bank believed that CPI inflation could reach as low as 1% by the middle of 2024; however, it is now anticipated to reach approximately 3.4%.

The increase in the interest rate, which is at its greatest level since 2008, will increase the strain on borrowers and help the Bank achieve its inflation objective of 2%.

However, the impact of higher rates has not yet been felt by the majority of American households, in part because many borrowers are linked to fixed-rate mortgages that have not yet been renewed.

Meanwhile, economists at the Bank issued a record upgrade to their forecasts for economic growth.

They now anticipate that the gross domestic product (GDP) will not decline in a single quarter this year, indicating that the economy will not contract and the United Kingdom may avoid a recession.

The committee believed in February that the economy could enter a mild recession during the first three months of the year.

Now, it expects the GDP to increase by 0.25 percent this year, 0.75 percent next year, and 0.75 percent the year after. It had previously predicted a 0.5% decline this year, followed by a 0.25 % decline the following year and a 0.25 % increase in 2025.

Since the formation of the MPC in 1997, the increase of 2.25 percentage points over the three-year forecast period represents the most significant upgrade.

“The improved outlook reflects stronger global growth, lower energy prices, the fiscal support in the Spring Budget, and the possibility that a tight labour market leads to lower precautionary saving by households,” the report explained.

Nonetheless, households with lower incomes will continue to be disproportionately affected by rising food and energy prices, as these items typically account for a larger share of total expenditure, according to the Bank.

Two of the Bank’s nine MPC members voted to maintain the current 4.25 percent interest rate.

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