The Bank of England, today, raised interest rates to 1.75%. The rise of 0.5% (50 basis points) is the biggest rise in twenty seven years. The vote was eight to one in favour of the hike. The Bank also issued a warning that the UK is headed for a year long recession with inflation hitting 13% CPI, which will be well over 15% as measured by the Retail Prices Index. We can now expect a winter of discontent with millions of public sector workers holding out for pay rises around the 8 – 10% mark. Very bad news indeed for the next Prime Minister of the UK.
The Bank of England raised rates to try to tackle inflation, but, it was only a few months ago that the Governor stated that inflation was beyond the control of the Bank as rising energy prices are driving the rises. It’s obvious to anyone that the 77% increase in energy prices due in October will immediately add to inflation, and, Ofgem has just announced that the energy price cap will now be reviewed every three months, which will probably mean further rises this coming January, in the middle of Winter.
Commodity prices such as corn, oil and wheat have fallen over the Summer, but massive price rises are expected due to poor harvests and worldwide shortages. While consumers have seen prices rise in the supermarkets, this is as nothing compared to what is coming down the pipe in late 2022, and early 2023. The interest rate rise announced today will push up mortgages on standard variable rates (about 20% of mortgage payers), and will make credit more expensive, not good news for consumers or businesses. Small businesses in the UK will be hit hardest as they’re already struggling with huge hikes in energy prices. There is no energy price cap for the small business sector and many fixed deals are ending.