Interest rates rise again to 4.25%

The Bank of England’s Monetary Policy Committee (MPC) has voted to raise the bank’s base rate to 4.25%, the eleventh consecutive rise in interest rates since January 2022.

The rate rise follows the release the February’s Consumer Prices Index which found inflation had risen to 10.4%, despite economists predictions that the rate of price rises would abate through 2023. The MPC’s economists voted 7-2 in favour of the rise, with the two opposing votes preferring to keep rates at 4%.

The Bank of England had, until yesterday’s inflation figures were revealed, been expected to hold interest rates at 4% in light of ongoing instability in the financial sector, in particular the recent collapse of Silicon Valley Bank in California, and the purchase of Crédit Suisse by the Swiss government-owned bank, UBS. In the MPC’s statement announcing the rate rise, the Bank of England shared that it felt the UK’s banking sector remains resilient to further rate rises, despite the effects being seen around the world by rising bank wholesale funding costs.

As well as balancing the effect on the financial sector, the Bank of England also cited the recent Budget’s announcement that the government’s Energy Price Guarantee would remain in place for a further three months and this would go some way to offsetting the latest rate rise’s impact on borrowing costs and mortgage repayments on household finances.

The Bank explained it still expected inflation to ease throughout the year, in particular thanks to falling energy bills in the latter half of the year, and the UK economy is on track to avoid recession in 2023.

Previous predictions expect inflation to fall to 4% by the end of year, with interest rates reaching no higher than 5%, with the BBC’s Economics Editor Faisal Islam commenting that a freeze to interest rates was now expected when the MPC next meets in early May.