Closing post
Time for a quick recap.
The Bank of England has raised interest rates for the 11th time in a row, taking Bank Rate to 4.25%, despite the turmoil in the banking sector.
Amnnouncing the move, the BoE also predicted that the surprise resurgence in inflation would probably fade fast. Some economists predict that interest rates could now be at their peak, but others suspect rates will rise again to 4.5% by this summer.
The decision split the MPC, with seven policymakers backing the rise and two voting to leave interest rates unchanged.
Chancellor Jeremy Hunt welcomed the move, saying it was important to get a grip on inflation. But his Labour shadow, Rachel Reeves, says the rate rise would be a source of huge concern for families across the country.
The Bank of England raised its forecast for the UK economy in the second quarter of this year, thanks to measures in last week’s budget, and no longer expects a recession this year.
BoE governor Andrew Bailey has told broadcasters:
“We were really a bit on a knife edge as to whether there would be a recession... but I’m a bit more optimistic now.
Bailey also insisted that raising interest rate would bring inflation down to the Bank’s 2% target:
Andrew Bailey explains why we have raised rates by 0.25% today. Inflation is still too high, but we continue to expect it to fall sharply from the middle of this year. Raising interest rates is the best way we have of making sure that happens. pic.twitter.com/kwhowGRZoa
— Bank of England (@bankofengland) March 23, 2023
But the Bank also warned that risk sentiment had reversed and volatility had picked up following the collapse of Silicon Valley Bank.
The rate rise is likely to cool the UK economy, with former MPC member Danny Blanchflower calling it a ‘disastrous error’.
OK so here is MPC FEB forecast for no growth for years
— Professor Danny Blanchflower economist & fisherman (@D_Blanchflower) March 23, 2023
Why would you raise rates to make growth even slower
Beats me sorry pic.twitter.com/X3nOXaUA7G
One Guardian reader, Kevin G, also questions whether hiking borrowing costs will actually cool the UK’s inflation porblem, pointing out:
To my understanding, this inflation is being caused by the high cost of gas and energy, the rising cost of food which is set by the supplier, basically things that are out of control of the regular people.
How is raising the interest rate going to cause the decrease in the things that are out of the control of the UK population?
The Unite union urged Britain’s biggest banks to pass on higher interest rates to savers, citing new figures showing they have made an extra £7bn by refusing to do so.
In other news….
A third of care homes across England have considered closing during the past year because of “financially crippling” running costs, as concerns rise that gas suppliers are profiteering at the expense of small businesses.
The sub-prime lender Amigo Loans is to be liquidated after it failed to raise enough money to fund compensation to customers.
Lloyd’s of London has swung to an annual loss as it paid out more than £21bn to customers for claims relating to the war in Ukraine and Hurricane Ian in the US.
The home improvement retailer Wickes has said the outlook for its UK business remains “bright“, buoyed by young renters spending more to spruce up their accommodation.
Analysis: Is this the end of UK interest rate rises or are there more to come?
The question now is whether the Bank of England will opt for a 12th interest rate rise in a row, or hold rates at their current level, my colleague Phillip Inman writes:
Markets are pricing in a further small hike to 4.5%. However, a glance at the forecasts for inflation show it declining rapidly this year, mostly in response to a dramatic fall in energy costs. While wholesale gas prices are expected to be double the pre-pandemic level next year, they will have fallen back from the five-fold increase in 2022.
Strong wages growth, which for more than a year has been the central bank’s main worry, began to wane last November and has been largely flat ever since.
By next spring the consumer prices index will be below the 2% target level. On this most forecasters agree. So why carry on raising rates now when the job is done, if the only job is to bring inflation down to the target level?
This point persuaded monetary policy committee (MPC) member’s Silvana Tenreyro and Swati Dhingra to vote against a rate rise from 4%, just as they both objected to the increase from 3.5% in February.
The Bank’s remaining seven MPC members, including the governor Andrew Bailey, indicated that the strength of the economy underpinned their decision for a further base rate increase to 4.25%.
Updated
