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Bank rates hit five percent
Bank rates are going up to their highest level in 15 years after the Bank of England has decided to increase rates to five percent.
Senior Journalist, covering the Credit Strategy and Turnaround, Restructuring & Insolvency News brands.
Senior Journalist, covering the Credit Strategy and Turnaround, Restructuring & Insolvency News brands.
It’s the 13th time Threadneedle has increased bank rates, with its Monetary Policy Committee (MPC) voting by a majority of seven to two to raise rates by 0.5%. The two other members preferred to maintain rates at 4.5%.
The bank does, however, say it believes inflation with “fall significantly”, due to improving energy prices – although services inflation is projected to remain broadly unchanged in the near term, while core goods and food price inflation is expected to decline later this year.
The MPC has also said it will adjust the bank rate as necessary to return inflation to the two percent target in the medium term.
Reflecting on the increase, Hargreaves Lansdown’s head of money and markets Susannah Streeter said: “There are glimmers of hope that a tighter path of monetary policy may not have to be trodden, with forward indicators are already flashing that a larger drop in inflation is incoming.
“Producer input price inflation eased sharply in May to 0.5% from 4.2% indicating pressures are easing further up the supply chain. These are prices that will be passed on at the factory gate and should make their way onto our shelves.
“The prospect of recession again looming, given the mortgage shock, may dampen down pay demands and reduce the wage spiral risks. A fast train of realisation is set to hit that budgets are set for a big squeeze as refinancing costs escalate, and deadlines loom for a larger span of borrowers.
“With borrowing costs shooting up again and many more companies and consumers set to tighten belts, the prospects of the UK avoiding a recession look very slim.’’
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