UK interest rates highest since 2008


The quarter of a percentage point rise to 4.5 was expected, but the 12th increase in a row brings concerns…reports Asian Lite News

The Bank of England has raised interest rates to their highest level since late 2008 as it continues to combat stubbornly high inflation in the United Kingdom.

The decision on Thursday by the bank’s nine-member Monetary Policy Committee to lift its main interest rate by a quarter of a percentage point to 4.5 percent was widely anticipated in financial markets.

The increase was its 12th in a row. Just two members of the bank’s nine-member panel voted to keep interest rates unchanged.

Bank of England Governor Andrew Bailey told reporters in London after the rate changed: “The rise in bank rates since December 2021 will weigh more on the economy in the coming quarters and the [Monetary Policy Committee] factors this into its policy decisions.”

Like other central banks around the world, the Bank of England has sought to keep a lid on inflation, which over the past year has been fuelled by Russia’s invasion of Ukraine.

That sent energy prices soaring, a development that then led to price increases across a wide array of goods and services.

The Bank of England started raising interest rates in late 2021 from a low of 0.1 percent in order to keep a lid on price rises that were first largely stoked by bottlenecks resulting from the lifting of coronavirus lockdown restrictions and subsequently by the war in Ukraine.

Tasked with keeping inflation at about 2 percent, the bank said inflation would likely fall to about 5 percent by the end of this year.

But it warned there were “considerable uncertainties” over when inflation would return to its target, citing “significant” upside risks.

“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the bank said.

Inflation currently stands at just over 10 percent. In documents accompanying its decision, the bank said food prices have stayed higher for longer than expected. As a result, it said, consumer price inflation is expected to decline less rapidly than previously thought.

The interest rate hike will pile more pressure on borrowers, particularly those who have mortgages that track the bank’s headline rate.

Many homeowners will be cushioned from the recent increases because they fixed their mortgages when interest rates were ultra-low during the coronavirus pandemic.

However, those whose fixed-rate terms expire over the coming months will face much higher borrowing rates when they look to lock in new deals.

Serious crisis

Meanwhile, For the past two years, British nationals have faced a consistent cost of living crisis, making it difficult for households to meet their needs. The cost of living increased sharply across the UK between 2021 and 2022. This situation has increased the number of shoplifting incidents in the UK.

According to The Metro, one in 10 young adults has admitted to stealing items from supermarket self-checkouts to cope with the cost of living crisis. Inflation has stubbornly remained in the double digits for months (the latest figure was a gruelling 10.4%), keeping food and fuel costs sky-high.

“Families struggling under the burden of higher price tags have seen the cost of food and non-alcoholic drinks rise by 19.1%; some have doubled in a year. Imported food rose by a quarter in the last year, according to the latest data from the Office for National Statistics (ONS).”

Essentials like the children’s medication Calpol are among the most often stolen goods in the UK, according to a report. Security tags are becoming more frequent on specific products, such as milk and cheese.

The Independent reported that the latest Office of National Statistics figures for England and Wales show that shoplifting rose by 22 percent in the year to September. The British Retail Consortium figures suggest the same, with 7.9 million cases last year, five million more than in 2016/17.

Meanwhile, a 2022 study by the Centre for Retail Research found that shoplifting cost the British economy 660 million pounds in 2021-22.

A report by Oxford Economics and financial services company Hargreaves Lansdown found that while almost 90 per cent of the UK’s lowest-income families had poor financial resilience when inflation hit record highs last year, many of those on middle incomes now find themselves squeezed as higher mortgage costs bite. 

The most recent forecast by the National Institute for Economic and Social Research showed that middle-earning households will see their real incomes fall by around 6.2 per cent, or £1,077 per year, in 2023-24.

In its Autumn Statement last year, the government announced additional cash payments totalling up to £900 for families on lower incomes, in 2023-24. According to NIESR, this will help offset some inflationary pressures, resulting in a 2.3 per cent net income gain for the poorest households.

But wealthier households receive less help to defray rocketing prices. “Of course [low-income families] are still facing an incredibly difficult situation. Let’s not pretend it’s easy, but that cash help will make a difference to those poorest households [. . .] whereas middle-income earners don’t have the help but face all the costs,” said Adrian Pabst, economist at NIESR. 

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