The Bank of England has raised interest rates to 5 per cent after inflation came in above expectations.
In their rate setting meeting today (June 22), the central bank’s monetary policy committee voted 7-2 to raise the base rate of interest, the 13th hike in a row.
Pressure had been building on the Bank of England to raise rates after data showed inflation rose to 8.7 per cent in the twelve months to May, beating analysts’ expectations, with core inflation rising to 7.1 per cent, the highest level since 1992.
Earlier this month the central bank launched a review of how it makes and uses economic forecasts after criticism from politicians.
The rise in rates expectations in the UK have led to soaring mortgage rates and strain for borrowers as lenders pull and reprice rates at short notice.
Outlook for the UK
Chris Clothier, co-manager of the Capital Gearing Trust, said he expects inflation to come down later this year, but at a slower pace than the markets or central bank expected.
“A combination of supply and demand-side factors has served to keep inflation elevated,” he said.
“On one hand, supply-side factors such as tight labour markets and the prolonged impact of shocks from food and energy have kept input costs elevated.
“On the demand side, continued wage increases and longer fixed terms on mortgages have kept household spending elevated for longer.”
Marcus Brookes, chief investment officer at Quilter Investors said the UK seems to be suffering from a “more unique” set of circumstances and high inflation left the central bank with “little choice”.
“Ultimately, while the UK consumer has held up fairly well in the cost of living crisis to date, we are starting to see signs of buckling, with the looming mortgage shock coming further into view and interest rates now beginning to bite on households,” he added.
sally.hickey@ft.com
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