“The Bank has moved onto the front foot this month, raising the base rate by 0.5 per cent,” said Ellie Sawkins, Investment Analyst at the Wealth Club in response to today’s (22) MPC announcement that the BoE MLR will be raised to its highest level in 15 years.
“While an increase in rates was all but guaranteed following this week’s sticky inflation figures, sentiment was divided over how high the Bank could go. Too small an increase and the Bank risks being labelled ineffective but too large and it could drive the economy into recession.”
By a wide margin, the MPC voted for the latter, although opinion was split with two members voting for a hold. Headline inflation was a key driver behind today’s decision, having defied expectations to hold steady at 8.7 per cent. At the same time, core inflation, which strips out more volatile energy and food prices, has continued its march higher, rising at its fastest rate since 1992.
“Looking for the positives, real GDP increased in Q1 2023, marginally ahead of expectations and the Bank continues to forecast inflation falling significantly during the course of the year, with food prices in particular, expected to calm” she added.
“However, in what has objectively been a difficult week for the Bank, it has continued its tightrope walk between stubborn inflation and an increasingly fragile economy, albeit with small steps. But one wrong move and the consequences could be painful.
“Whilst a 0.5 per cent rise will be grim reading for mortgage holders, spare a thought for those in Turkey, where the central bank has just raised interest rates by 6.5 per cent to 15 per cent!”
To use this website you must be aged 18 years or over. Please verify your age before entering the site.
