The Bank of England has increased interest rates for the thirteenth time in a row as Britain’s inflation rate remains persistently high.
The rate was almost nil at the end of 2021, thus the central bank’s announcement today that it has increased it to 5% from 4.5% is startling.
As a result, the rate has risen to its highest level in 15 years once more. The Bank of England boosted interest rates, generally known as the bank rate, by 0.25% last month.
The cost of borrowing money for things like mortgages, loans, and savings accounts increases as interest rates rise.
The statistics agency said April’s figure being glued into place was driven by higher prices for flights, second-hand cars and live gig tickets.
Anaam Raza, of investment platform Saxo, told Metro.co.uk: ‘It was common knowledge that the Bank of England was preparing to raise interest rates today for the 13th time in a row.
‘This will be a large blow to the UK population, particularly mortgage holders.’
Given that interest rates are now even higher, monthly mortgage payments will likely soar. Those applying for mortgages may see offers pulled or rates jacked up.
This only adds financial pain to even more Brits already struggling with soaring food costs, with grocery shops throughout a month thought to be more expensive than energy bills.
According to the ONS, food inflation eased slightly to 18.4% in May, down from 19.1% in the year to April 2023, though this is still close to the 45-year high.
The Bank has been on the attack for the last half a year as Britain faces its worst inflation in four decades, with raising interest rates being its best weapon.
The Bank’s policy-makers hope that, by making borrowing costs higher, people will be more inclined to save rather than spend, so demand for goods go down.
Inflation would, they hope, go down with it so prices won’t climb as fast as they are now.
The BoE is tasked with cooling down inflation to 2% but the figure was in the double digits for months, peaking at 11.1% in October. The government, meanwhile, is hoping to halve inflation by the end of the year.
When setting interest rates, BoE policy-makers closely look at core inflation, which is how fast the prices for goods and services are rising with the exception of food and energy.
Core inflation is a good gauge of how deep inflation has burrowed into the economy as, to economists, it removes the price changes of food and energy.
Experts see these as more volatile – they’re more easily spooked by outside influences like bad harvests, for example, and things that people can’t go without.
Services like cinema tickets or haircuts, though, which core inflation considers, can though. So core inflation rising suggests people are cutting back spending on all but the necessities.
Core inflation in May, the ONS said yesterday, climbed to 7.1% in the year through May, the fastest pace since 1992.
Tommaso Aquilante, associate director of economic research at the business analysts Dun & Bradstreet, told Metro.co.uk: ‘It’s the highest level for over 30 years, leaving the UK with the highest core inflation rate in the G7.’
‘With the [Consumer Price Index] inflation rate remaining sticky at 8.7% yesterday and everyday prices still remaining high,’ Saxon’s Raza added, ‘thousands across the UK will now be stuck between a rock and a hard place when deciding what to do next with their personal finances.’