Base Rate Rise to 0.75% Expected from the Bank of England as Inflation Further Escalates
The Bank of England is under increasing pressure to raise interest rates as the Russian attack on Ukraine escalates. Despite the conflict bringing a high level of economic uncertainty to the UK, and warnings from the Chancellor of a turbulent future, base rates are expected to rise to 0.75% this week. This, coupled with the expectation that base rates will go as high as 2% by the end of the year, is a real fear in UK households with the cost of living going up every day.
In February this year the Bank of England predicted that consumer price inflation would hit its highest level in April at 7.25%, coinciding with the expectation that gas and electricity bills will be going up by a whopping 54% when the price cap increases.
These predictions have now been adjusted and are expected to rise to as much as 9% inflation rate in the coming months. The rise in interest rates is an attempt by the Bank of England to fight the increasing cost of living, making borrowing far more expensive than previously.
With inflation currently at a 30 year high of 5.5% and expected to rise to more than 4 times the Banks 2% target, it is imperative that the Bank finds a way of getting inflation under control.
The invasion of Ukraine by Russia has placed additional pressure on the Bank to increase the base rate.
The nine members of the Monetary Commission are predicted to increase the rate on Thursday of this week (17th March) from the current rate of 0.5% to 0.75% in the battle to gain control over the economy and inflation.
This indicates a third rise in the base rate since December 2021 and will mean increased mortgage costs for millions of UK homeowners.
The invasion of the Ukraine has resulted in sky rocketing prices for natural gas which has risen by an incredible 60% since February, prior to Putin’s troops entering Ukraine.
Experts have stated that the rise in interest rates will not have an immediate effect on inflation in the short term and that the escalating gas and electricity costs will be a struggle for every UK household but will ultimately reduce inflation. Achieving the right balance is the aim of the Bank of England.
Research director at the Resolution Foundation think-tank, James Smith stated: “I think it’s really tough for the Bank at the moment to get this right. If they go too slowly, you get the inflation shock. If they go too fast, it chokes off recovery. And then there is a recession risk on top of that.”
The fear among experts is that increasing rates to keep prices down will have a detrimental effect on an already fragile economy. Sanctions levelled at Russia are resulting in massively increased oil prices which is hitting each and every household with fuel prices going through the roof. All of this disruption is triggering fears of a potential recession.