The Gazette

Rate rise a ‘body blow to household finances’


THE Bank of England has pushed interest rates higher as it tries to put a lid on soaring prices after UK inflation unexpected­ly jumped higher last month.

Policymake­rs on the Bank’s Monetary Policy Committee (MPC) yesterday voted seven to two to increase rates from 4% to 4.25%, but said they expect the economy to grow slightly in the second quarter of the year, marking a reversal of the 0.4% decline in gross domestic product (GDP) the Bank had anticipate­d last month.

Inflation is set to come back down this year despite a surprise increase in Consumer Prices Index (CPI) inflation last month, up to 10.4% from 10.1% in January, driven by surging food and drink prices.

“CPI increased unexpected­ly in the latest release, but it remains likely to fall sharply over the rest of the year,” the Bank said.

It is the 11th time in a row the Bank has hiked interest rates.

The MPC recognised the recent period of volatility in the global banking sector, after the collapse of the US’s Silicon Valley

Bank and the rescue takeover of Credit Suisse, but stood firm in its mission to bring inflation back down to its 2% target.

“The economy has been subject to a sequence of very large and overlappin­g shocks,” policymake­rs said.

“Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainabl­y in the medium term.”

The MPC said it would make a “full assessment” of recent banking woes and market volatility in its forecast in May, and that it was monitoring the situation closely.

There was also better news for the country’s jobs market with employment growth in the second quarter likely to be stronger than expected, and a flat rather than rising unemployme­nt rate.

The Chancellor’s spring Budget earlier this month could increase GDP by about 0.3% over coming years, the Bank said.

The experts were also calmer about the outlook for household energy prices amid the government’s support scheme, with lower prices set to help bring down inflation by the end of the year.

However, the latest base rate rise has been described as another “body blow” to household finances by a debt help charity.

StepChange said that 17% of its new clients are already in arrears with their mortgages.

Peter Tutton, head of policy at the charity, said: “Another rate rise, alongside this week’s news of rising inflation, is the latest in a succession of body blows to household finances.”

He added: “For anyone worried about rising housing costs and their ability to meet financial commitment­s, the most important thing is to reach out for help as early as possible.

“Don’t wait to contact your lender or speak to a reputable free debt advice charity like StepChange. We are here to support you.”

Mortgage borrowers on deals which track the Bank of England base rate will now see nearly £24 per month added to their costs on average, following the latest rate hike.

According to figures from trade associatio­n UK Finance, the increase will typically add £23.71 per month – or more than £284 per year – to the cost of a tracker mortgage.

Borrowers on a standard variable rate (SVR) meanwhile will see their costs increase by £15.14 per month – or more than £181 per year – on average.

 ?? ?? The Bank of England raised interest rates for the 11th time in a row yesterday
The Bank of England raised interest rates for the 11th time in a row yesterday

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