Slashing soaring costs: Bank of England increased interest rates to battle inflation
For the 11th time in less than 18 months the Bank of England has increased interest rates after a shocking jump in inflation last month.
Following an unexpected jump in the UK inflation rate in February to 10.4% from 10.1% in January – caused by food prices increasing at the fastest pace in 45 years – the Bank of England have made the decision to increase interest rates to 4.25%.
The increase comes a way to reduce inflation rates in the long run, but it will add immediate additional pressures onto people, particularly those with mortgages. However, the Bank’s Monetary Policy Committee (MPC), who voted by a majority of seven to one to increase the interest rate, have claimed this hike should be the last as there are signs inflation will fall within the coming months.
Andrew Bailey, the Governor for the Bank of England, told broadcasters that there were signs the price spiral was ‘peaking’. He added: ‘But of course it’s far too high. We think it’s going to come down sharply, really from early summer onwards. But we haven’t seen that happen yet.’
In an upbeat assessment, the Bank announced it had boycotted it’s prediction of the UK economy entering a recession. UK gross domestic product is now potentially on track to grow slightly in the second quarter of the year, after a previous prediction of a 0.4% drop.
‘Back at the beginning of February, we were really on a bit of a knife-edge as to whether there would be a recession. Certainly, we thought the economy would be quite stagnant,’ Bailey said. ‘It’s not off to the races, let’s be clear. But I’m a bit more optimistic.’
Not taking their eye off the situation, the Bank has said it is closely monitoring the situation and is due to deliver another update on the economy in May.
However, many individuals haven’t been able to see the silver linings of the UKs current financial state. A leading poverty charity has warned that people will not have enough resources to bear the brunt of continued rising costs.
Responding to the monthly inflation announcement which occurred on Wednesday, Rachelle Earwaker, Senior Economist at the Joseph Rowntree Foundation, said: ‘With [Wednesday’s] rise, the rate of inflation has been over 10% for six months in a row.
‘Many will simply not have the resources to bear another shock this this. To out this in context, we found that nine in 10 families on Universal Credit said they couldn’t afford the essentials in October last year.
‘Since then, inflation has been in double digits for a further five months, with the cost of essentials like food, clothing and utilities soaring.’
Inflation levels hit record highs in October 2022 when they reached 11.1%.
‘According to [Wednesday’s] data, food prices have risen by 18% in the year to February – there highest rate in over 45 years – and clothes and footwear have risen by 8.1%’, Earwalker said. ‘These should be flashing warning signs to the government that tinkering with policies won’t be enough to head off the many escalating crises facing people on low incomes.’
Image: Nick Pampoukidis