Displaying items by tag: interest rates

Bank of England governor Andrew Bailey has identified 'global shocks' as a significant threat to the UK economy. During a treasury committee session, he expressed concerns about the situation in the Red Sea, especially regarding oil supplies. Recent attacks by Iran-backed Houthi rebels on cargo ships in the Suez Canal have prompted some vessels to reroute for safety reasons. Oil giant BP even temporarily halted all oil shipments through the Red Sea due to the threat. Bailey said that these disruptions could impact shipping prices and costs, which would have implications in the monetary policy realm. However, he noted that there has not yet been a prolonged spike in oil prices. Deputy governor Sarah Breeden also highlighted the threat of uncertainty, encompassing macroeconomic conditions, geopolitical tensions, credit risks, and unemployment. Regarding the UK housing market and interest rates, Bailey observed that market interest rates have recently decreased, resulting in lower mortgage costs.

The Bank of England has maintained its interest rate at 5.25% for the third consecutive meeting. This decision reflects the Bank's stance that borrowing costs need to remain high for an extended period to combat inflation, which is still well above the target rate. Unlike the US Federal Reserve, which hinted at potential rate cuts next year, the Bank of England, led by Andrew Bailey, suggests that the UK is not yet in a position to consider such reductions. Bailey expressed that it is too early to speculate about cutting rates, emphasising the need for more progress in controlling inflation. The decision was not unanimous, with three members of the Monetary Policy Committee (MPC) arguing for a rate increase, but they were outnumbered by the six others. Despite faster-than-expected inflation drops and signs of economic weakness, the Bank is cautious about reducing rates too soon, fearing a resurgence in inflation. Bailey noted that while significant progress has been made in reducing inflation from over 10% in January to 4.6% in October, there is still a journey ahead to reach the 2% target.

The UK has experienced 14 consecutive interest rate rises, affecting both mortgage holders and savers. According to the Office for Budget Responsibility (OBR), in 2023 the gains from higher savings returns have surpassed the costs of rising mortgage rates, slightly increasing real household disposable income. However, this improvement is flanked by decreases in disposable income in 2022 and an expected drop in 2024. The impact of these rate hikes has been uneven, with many having minimal savings and large sums in non-interest-bearing accounts. The OBR warns of further financial strain in 2024 as fixed-rate mortgages expire, leading to higher debt interest payments and a decline in disposable income. This forecast remains significant even if the Bank of England does not increase rates beyond the current 5.25%. The situation is also impacting non-homeowners, contributing to rising rents. Overall, the OBR suggests tougher financial times ahead, even without additional rate hikes.

In October, UK inflation significantly decreased to 4.6% from 6.7%, marking the lowest rate in two years and a major easing of price pressures. This represents the most substantial monthly drop in the annual Consumer Price Index (CPI) rate since April 1992. The Bank of England (BoE) has kept interest rates unchanged at 5.25% and expects a challenging journey to bring inflation down to its 2% target by late 2025. Rishi Sunak acknowledged this as progress towards his goal of halving inflation within the year, bearing in mind the anticipated election in 2024. Chancellor Jeremy Hunt views this as a step toward long-term economic growth. Despite this positive trend, Britain still maintains the highest consumer price growth among G7 nations and has seen a 21% increase in consumer prices since late 2020. The BoE and economists anticipate further interest rate cuts by December 2024.

A Christian economist has urged churches to consider setting up benevolence funds to help members struggling with the cost of living as inflation proves more persistent than expected. Former IMF economist and government debt manager Dr Paul Mills said the step was needed for those on fixed incomes or losing their jobs. He was speaking after an economic advisor to the Chancellor said the Bank of England may need to spark a recession to finally get rising prices under control. The bank's target from the Government is to get inflation down to 2%, but the public has yet to see the pain that is coming through the economy from interest rate rises. On 22 June the base rate increased to 5%, a bigger increase than expected. Dr Mills said it would help to pray for the nation, and for medium- to long-term steps to turn things around.

The Bank of England has raised interest rates to 2.25%, the highest level for 14 years. This will make it more expensive to borrow, which should - theoretically - encourage people to borrow less and spend less. It should also spur people to save more. However, there is also a risk that it can drag on growth, harming the economy. The bank's monetary policy committee, which sets rates, believes that the economy is already shrinking, which would officially push the UK into recession. The Bank of England has also warned that the government’s energy price freeze will push up inflation in the medium term. With energy bills rising less sharply, households will have more money to spend on other goods and services (although some people are already having to skip meals due to rising bills).