Bank of England’s rate hike would be harmful to UK economy
The forecast interest rate hike by the Bank of England to be announced on Thursday is harmful to the economy and is, in effect, a misery rate rise.
The latest decision comes amid skyrocketing prices and indications the UK may face a recession this year.
As the Bank of England took a passive stance for much too long in 2021 as the country was emerging from Covid lockdowns and prices were starting to soar, they now feel the need for an aggressive move on rate hikes.
Yet I believe this is too hard, and too late.
As I was quoted by Financial Express and Business Money, amongst other media, just as the country looks set to tip into a possible recession, they are contemplating a 0.5% increase, which can be expected to exacerbate the economic downturn.
Should this hike go ahead, it will be the largest rate rise since 1995, taking rates to 1.75%, back to levels we haven’t seen since 2008.
The decision means elevated borrowing costs for property owners on variable rate mortgages.
In addition, lenders will increase rates on personal and business loans during a time when households and companies are grappling with the cost-of-living crisis.
As such, the Bank of England’s forecast rate hike would be harmful to the country’s economy and pile the pressure on people throughout the country.
As it stands, consumer price inflation in Britain is at 9.4%, which is significantly higher than the central bank’s 2% target. Indeed, the bank’s governor Andrew Bailey has often said he will do whatever is needed to return to that target, or at least near it.
Yet I believe the inflation problem is being driven by external factors such as surging energy costs, as opposed to domestic issues, which will make it tough to stop soaring prices by increasing rates.