Economic crisis looms: Bank of England increases interest rates due to inflation shortcomings
The UK is grappling with persistent inflation, as figures from the Office of National Statistics (ONS) reveal that inflation rates remain at 8.7% as of yesterday. This stagnant figure contradicts the Bank of England's assurances about a quick fall in inflation in 2023.
Douglas Grant, Group CEO at Manx Financial Group PLC, expressed his concerns, stating that inflation figures remain stubbornly high. The rising prices for second-hand cars, live music events, video games, air travel, and recreational and cultural goods have significantly contributed to the high inflation rates.
However, falling prices for petrol provided some relief towards the downward trend in inflation. Despite this, the Bank of England has raised interest rates to 5%, the highest in 15 years, in an attempt to curb inflation. The Bank has already pushed through 12 consecutive rate hikes since December 2021.
The average two-year fixed rate deal for mortgages has risen to 6.19%, posing a significant challenge for homeowners. The Institute for Fiscal Studies thinktank predicts that almost 1.4m mortgage holders could see 20% of their disposable income erased by the surge in borrowing costs.
Financial markets are betting that the Bank of England will increase rates today by at least a quarter-point from the current level of 4.5%. Alex Livingstone, Head of Trading & FX at Titan Asset Management, has confirmed that the Bank of England raised rates by 0.5% today.
The global banking sector is showing signs of weakness, and the UK's debt is currently higher than annual GDP for the first time since 1961. This economic situation has raised concerns among experts, with Charles White Thomson, CEO at Saxo UK, commenting that the latest inflation figures are disappointing and indicate that the UK is in an economic danger zone.
Small and Medium Enterprises (SMEs) must review their lending structures to keep ahead of the economic challenges brought by interest rate hikes and ongoing rising costs.
Photographs for this article were captured by K. Mitch Hodge and Nick Pampoukidis.
This persistent inflation is a challenge that the UK government, the Bank of England, and businesses must address to stabilise the economy and protect consumers from the impact of rising prices.
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