Bank of England Increases Interest Rates to 0.75% pa

The Bank of England has today raised the UK central bank base interest rate (Bank Rate) from 0.5% to 0.75%. The obvious reason to do this is to try and bring the rate of inflation down.  This happens just a day after the US Federal Reserve also increased interest rates.

The Bank of England suggests that without action, price rises i.e., inflation could hit 10%pa.  Even with the increase, the Bank suggests that inflation could still move up to 8%pa.

The Bank’s target inflation rate for the UK is 2% pa.

Comment

You should be aware that the bank has also suggested it may increase interest rates another 2 or 3 times this year as has the Federal Reserve.  In addition, and this is only our opinion, we believe the Bank of England is broadly tracking the actions of the Federal Reserve to maintain stability of currency exchange between the USA and the UK.  Trade deals, a long way, but perhaps still in its thinking.

If you have savings, do expect to get a little more in interest but some bank accounts have not passed on the increase yet.

If you are on a variable or tracker rate mortgage, clearly your mortgage costs will rise.  That said, with base rates at 0.75%, these are not back anywhere near the heady days of base rates at 10% +.

Don't forget, we believe that the UK needs a sustained period of inflation to devalue billions of covid-19 borrowing before it is due to be repaid.