USA 0.75% – 1.25% UK
The US Federal Reserve announced that it will be increasing interest rates to 0.75 percentage points after meetings took place on the 14th and 15th of June. This follows on from an increase to 50 percentage points in May. These moves are hoped to help reduce soaring inflation rates seen across the US.
The interest rate moves made in the US usually influence economic moves made elsewhere, especially in the UK and Europe. Just a few days after the Federal Reserve’s hike, the Bank of England across the pond took similar action in hope of kerbing even higher inflation rates than those seen in the USA.
The UK base rate has now been increased to 1.25 percentage points, up from 1 percentage point. The committee that decides the base rate voted 6-3 in favour of a 0.25 percentage point increase. Interestingly, the three voters who lost the vote were all in favour of a 0.5 percentage point increase.
This suggests they might increase the base rate more aggressively in the future. This latest increase is the Bank of England’s fifth consecutive base rate hike, which is currently at its highest in 13 years.
How high will UK inflation and the base rate go?
At the time of writing, the UK’s rate of inflation is at 9% but experts are predicting it could exceed 11% by the end of the year. This is much higher than the Bank of England’s earlier perditions and is x5 more than the bank’s inflation rate target of 2%.
The base rate will need to continually be increased to combat such inflation forecasts, meaning we can expect more increases. The BBC spoke to several leading economists to uncover where the base rate may need to go to really stop inflation. One group believe it will climb all the way to 3%, whereas another suggested 3.5%. However, another suggested it won’t need to increase this high to get inflation under control, stating 1.75% will be enough.
What is the highest the base rate has ever been?
The highest base rate ever set by The Bank of England was 17 percentage points. This occurred in 1979 and was implemented by the administration of the new Thatcher government to help tackle inflation. It worked to a large degree but many critics believed it also negatively affected the UK’s manufacturing industry.
Worried about mortgage repayments?
If you’re a homeowner with a mortgage that is affected by the base rate, you may be worried at the moment. There might be things you can do today to prevent even higher mortgage repayments in the future. It’s best to speak with a professional UK mortgage adviser to assess your options.
Call our team at Euxton Mortgages now to discuss your options with a friendly and trained mortgage adviser.
August 2022
