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In the News

BoE raises interest rates to 4% - the highest for 14 years

Geoff Riley

3rd February 2023

We might be getting close to the peak of interest rates during the current tightening phase for UK monetary policy. The Bank of England today lifted official base interest rates for 10th consecutive time, this time by 0.5% to 4%, their highest level in 14 years.

At the same time, the latest Inflation Report forecasts a milder recession on with hope rising that lower energy prices will help the MPC to keep interest rates where they are for now. The MPC says further rises will happen only if more evidence of inflation persistence becomes available including surging wage inflation.

The BBC take on the 0.5% rise in interest rates.

The Guardian take on today's interest rate decision - limited good news. But still testing times ahead.

Here is BoE Governor Andrew Bailey explaining the rationale behind the latest interest rate increase.

Mortgage interest rates have climbed in recent months increasing the cost of servicing a home loan. Variable/tracker interest rate repayment mortgages rise by about £25 per month (£300/yr) per £100,000 of mortgage. So once again, home-owners will feel the pinch with a reduction in their effective disposable income.

Here are some worried home-owners

You can now get a better nominal interest rate on a two-year fixed saving bond - close to 4% although with inflation still hovering around 10% (but expected to drop), the real return on savings for millions of people remains negative.

The Bank of England is now forecasting a shallower recession than it did in their November Inflation Report. However, according to the Bank of England, the UK economy will not reach pre-pandemic levels until 2026. That’s *seven years* of lost growth. The UK is currently the only G7 country whose real GDP is still smaller than before the pandemic.

Earlier this week there was a new forecast from the IMF which had the UK down at the bottom of the growth league table for 2023 - even below Russia.

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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