In the News

Monetary Policy - UK base interest rates climb to 3.5%

Geoff Riley

15th December 2022

Borrowing costs have risen again, by the forecast 0.5%, to 3.5% - the highest level for 14 years (i.e. since the 2008 global financial crisis). Inflation is still 10.7%, still nearly 9% above the 2% inflation target. The change in UK interest rates since December 2021 is the biggest year-on-year increase since 1989

In short, we're entering recession, but the latest MPC voting, with a couple of MPC members actually voting to hold rates at 3%, signalling that interest rates may peak at closer to 4%, rather than the 5% than people were predicting little more than a month ago. However, some of the effects of earlier rate rises are already filtering through to the real economy, in the form of a cooling housing market.

Here is the Guardian's analysis from Larry Elliott of today's interest rate decision - tougher times ahead for borrowers, with the new normal for interest rates likely to be far removed from the days of 0.1% rates.

It seems as though rates are 'normalising' - whatever that means.

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.

© 2002-2024 Tutor2u Limited. Company Reg no: 04489574. VAT reg no 816865400.