Amid high UK inflation, the Bank of England plans to join the Fed in raising interest rates once again

In an effort to contain stubbornly rising inflation, the Bank of England will hike interest rates for the 14th consecutive day on Thursday to a new 15-year high and leave the door open for more rises in the months to come.

The majority of experts predict that the UK central bank will raise its benchmark rate from 5.0% to 5.250%.

There had been concerns that the bank might repeat its disproportionate half-point rise from June, especially among financially strapped people and companies. However, data from last month showed that inflation decreased more than expected to 7.9%, which reduced the temptation to act aggressively once again.

According to Kallum Pickering, senior economist at Berenberg Bank, “with inflation still four times the 2% target, the Bank of England has little choice but to raise the bank rate again and leave the door open to further hikes in forthcoming meetings.”

Despite raising rates last week, the US Federal Reserve and the European Central Bank are seen to be closer to pausing since inflation has decreased more dramatically than in the UK. Price increases have decreased to 3% in the United States and 5.3% throughout the 20 nations that utilize the euro.

To address the inflation brought on by rising energy costs after Russia’s invasion of Ukraine and supply chain disruptions as the world economy recovered from the coronavirus outbreak, central banks throughout the globe have raised borrowing rates.

Higher interest rates make it more costly for households and companies to borrow money to purchase houses, automobiles, or equipment, which helps to stifle inflation but also economic development.

The UK’s increased inflation may be attributed to many factors. Many economists attribute Britain’s separation from the European Union as the cause of the trade barriers and cost increases that resulted from Brexit. Others blame the Bank of England more directly for beginning to increase interest rates too slowly, which allowed inflation to spread more extensively across the economy, most notably in the form of increasing wages.

Whatever the distribution of responsibility, it has been a particularly difficult moment for UK families whose mortgage rates or rent have increased while they are struggling to make ends meet due to a cost-of-living crisis.

Many people have not yet felt any discomfort. Most British homeowners, unlike those in the US, only lock in their mortgage rates for a few years, meaning that those whose contracts are about to expire might face much higher borrowing expenses.

According to Bank of England Governor Andrew Bailey, almost a million homeowners would see their mortgage payments rise by 500 pounds (USD 640) per month by 2026 as about 2.5 million such arrangements are set to expire by the end of the current year.

The latest interest rate increases have so far only had a modest impact on existing mortgages, according to Michael Saunders, senior economic consultant at Oxford Economics and a former rate-setter at the Bank of England.