Interest rates rise again to 3.5%

The Bank of England’s Monetary Policy Committee (MPC) has voted in favour of its ninth consecutive rise in interest rates.

The Bank’s economists voted 6-3 in favour of increasing its base rate further to 3.5%. The increase is a more moderate 0.5 percentage point rise than the previous November decision, and aims to mitigate high inflation, currently at 10.7%. The slower rate of increase to interest rates is indicative of a more cautious approach to rate rises in light of the risk that higher mortgage payments and an increased cost of borrowing could exacerbate the economic damage of rising cost-of-living; two members of the Bank of England’s MPC voted to maintain interest rates at 3%, with one member in favour of a higher uplift in the base rate.

The Bank’s decision to increase interest rates follows a similar move by its American counterpart, which raised its target rate by 0.5%. A decision by the European Central Bank is also expected later today (15th December) to curb double-digit inflation in the Eurozone, while other smaller economies including Norway and Switzerland have also announced similar rate rises this week.

In its statement announcing the rate rise, the Bank of England has also shared that it expects the UK economy to shrink by 0.1% in the final quarter of 2022, a slight improvement on previous forecasts. However, inflation is expected to remain high until mid-2023, and is not expected to return to the Bank’s 2% target until 2024 at the soonest, as many inflationary pressures on the global economy, particularly fuel and food prices, remain elevated.

Ahead of the announcement on 15th December, financial markets saw the value of sterling fall, with the FTSE 100 and FTSE 250 indexes also both down by 0.65% and 0.6% respectively.