Bank of England Base Rate

Bank of England Base Rate Increases since 2002

Inflation in the UK is too high say the Bank of England’s Monetary Policy Committee when they met on 11th May 2023, with it being around 10% since last summer which is well above their target of 2%.

One of the main causes of today’s inflation is Russia’s invasion of Ukraine. It led to a big rise in the price of gas and some food basics like wheat. Higher prices for goods from abroad also played a big role.

BoE Inflation Rate Forecast
There is also pressure on prices from developments at home. Businesses are charging more for their products because of the higher costs they face. There are lots of job vacancies, and employers are having to offer higher wages to attract job applicants. Prices for services have risen markedly.

The Bank of England which is an independent body role is to keep price rises in the UK low and steady and their preferred means is to raise interest rates on mortgages, loans and savings. As a result the Bank of England raised their interest rate to 4.5%. In total, since December 2021, the Bank has increased interest rates from 0.1% to 4.5%.

Higher interest rates undoubtedly mean higher costs, however the Bank of England expect to meet their inflation rate target of 2% by late 2024. This doesn’t mean that prices will necessarily fall, but they will stop increasing so quickly.

So what does this all mean and when can we expect to see interest rates starting to fall. In the 11th May 2023 Monetary Policy Report there is an expectation that the Bank of England base rate will peak at around 4.75% in Quarter 4 this year, between 01 October and 31 December 2023, before ending the forecast period at just over 3.5% in Quarter 2, 2026.

Information correct on date of publication
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