Bank of England Raises Interest Rates to 5% pa

The Bank of England Monetary Policy Committee (MPC) has today confirmed base rates will rise by 0.5% pa to 5.0% pa.

This is the sixth rise of 0.5% pa or more in the last 12 months and now with 13 months of consecutive rises a clear indication that the Bank of England is worried about stubborn high inflation and keen to get to grips with it by reducing the amount of money we all have in our pockets to stop us spending and try to reduce inflation which did not fall in May 2023 but remained at 8.7% pa as confirmed by the Office for National Statistics (ONS) yesterday.

This will no doubt be painful for borrowers with mortgage term deals ending in the next 6 months but there have been plenty of warnings made by us and many over the last few years.

See: Need Recession

Comment

We have not seen such a consistent rise of 0.5% pa or more in interest rates to protect the £, government borrowing and reduce inflation since between June 1988 and October 1989 when there were 10 rises of 0.5% pa or more during that period.  We are already at 6 increases of 0.5% pa or more in the last 12 months and we hope this is the start of turning the tide on inflation.

Certainly, we have been making calls for tougher interest rate increases to come sooner in the same way that the US Federal Reserve dealt with their inflation problem that has now fallen to just 4.0% pa.

In foreign exchange markets, the £ remained steady against both the $ and the € after initial rises before the announcement.  This tells us that many bankers and investors were already expecting a 0.5% pa rise this month.  That said, the £ has been steadily getting stronger after the debacle of the Truss/Kwarteng Budget last Autumn and this will affect both UK global firms (FTSE 100 index) and domestic market firms (FTSE 250 to All Share indices).