Another Day, Another Interest Rate Hike

Another Day, Another Interest Rate Hike
Carl Hazeley

6 months ago2 mins

What’s going on here?

The Bank of England (BoE) announced a bigger-than-expected interest rate hike on Thursday, raining more pain onto Brits on the housing ladder.

What does this mean?

Fresh data out on Wednesday showed that the UK’s “core inflation” (that’s the price of goods and services, minus roller-coaster sectors like food and energy) shot to 7.1% last month, the highest level in 30 years. So the BoE decided to try and slam on the brakes by cranking up the “base rate”, which sets the tone for the rest of the country’s interest rates, from 4.5% to 5%. That jump, to the highest level since 2008, was double what economists had expected. And the kicker: investors now reckon we’re heading for at least a 6% base rate by year’s end. With Bloomberg Economics saying a 6% interest rate would trigger a UK recession, the country looks caught between an economic rock and an inflationary hard place.

UK interest rates

Why should I care?

For you personally: Hit after hit for homeowners.

Around 40% of British mortgage holders either have a variable interest rate, which will increase quickly with central bank rates, or a two-year fixed rate, which will jump up soon enough. Case in point: around 1.6 million fixed-rate mortgages due for an update in 2024, meaning these ever-climbing rates will see millions of Brits paying more every month – an unwelcome squeeze that’ll pinch cash-strapped households even tighter.

UK mortgages

For markets: No good deed will go unpunished.

The UK government isn’t planning any extra help for mortgage holders just yet. But if things do get worse and it eventually steps in, it’ll likely lead to even more government borrowing, with high-interest-rate repayments weighing on the economy. The relief for households, meanwhile, could stoke the fires of inflation all over again, and push interest rates higher still. In short, any well-intended short-term relief could end up making the bigger picture look even grimmer.

UK inflation


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