The Bank of England increased interest rates in March. The rates were then raised by 0.35% to stand at 4.25%. This was already decided after an inflation jump.
The decision to raise the interest rate was already finalized on March 23. It was also the 11th increase in a year and a half as the bank continues to struggle against inflation. It was at 10.1% back in February. But it has since jumped to 10.4%. This was after an unforeseen hike because of food prices.
The question on everyone’s mind is why are interest rates still soaring. What heights would it reach and if it would ever come down? Of course, many UK residents are trying to guess what the Bank of England’s next move would be.
The Mystery of Rising Interest Rates
The most basic reason for the rising interest rates is to try and fight inflation. The rate is now at 10.4%. This is well past what the Bank of England expected, which was a two percent inflation rate.
The reasoning is that rising interest rates would result in lower household spending. This would then pull the inflation rate down.
The prices of products have been going up since the country eased up on COVID restrictions. The price hike is due to various reasons. The main one is supply and demand. The ongoing war in Ukraine has also caused commodity prices to go up.
The supply shortages caused by the pandemic are one of the main reasons for inflation. Consumers were starting to demand more products and services. Especially when lockdowns were now lifted. People were once again spending money. But with companies struggling with limited supplies, it resulted in a price increase. Russia’s ongoing invasion of Ukraine has also resulted in higher gas prices.
How High is Too High?
Inflation is a global concern at the moment. More price increases and raised interest rates are reportedly expected. But many economists also believe these could ease up by mid-year. The Bank of England is certain to look for ways to make this happen. It’s a surefire way to prevent a recession.
The downside is that the projected peak is lower than predicted. This came out when the government was in a tight spot after its catastrophic Budget. This pushed markets into disarray.
The UK’s central bank’s monetary policy group has eight meetings per year. They do this to determine interest rate policies. The Bank of England is due to meet again soon. It’s reported that it will do so on May 11. They’ll then agree on the level of interest rates to set.
Before that happens though, many are expecting interest rates to hit a high of 4.6% by August. Then it will fall to 3.0% in the next five years.