Base Interest Rates Hit 1.25 Percent

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August 7th 2022
Tax Week 18
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Base Interest Rates Hit 1.25 Percent

Another consecutive month sees decision to raise rates.

For the fifth time in a row the six weekly meeting at the Monetary Policy Committee has seen the nine Bank of England members raise interest rates.

Base interest rates are now 1.25 percent following on from the last meeting's raise to one percent.

The rampant rise of inflation is again the reason for turning up the interest rates with inflation now expected to hit 11 percent this year, and is currently sitting at 9 percent. Well above the target of a low and stable 2 percent.

All meeting members were in agreement to raise rates, however the difference lay where two thirds opted for a rate rise by 0.25 percent, while the remaining third wanted a 0.5 percent rise - which would have see the base rate hit 1.5 percent.

It was actually predicted to hit 1.5 percent this month following the lead across the Atlantic, with the Americans raising their Fed base rate by 0.75 percent.

The looming recession seems contrary to rising inflation, but this is possible when the economic growth rate slows at the same time. This growth slowdown is currently happening due to aftershocks from the pandemic, war overseas and continuing supply chain issues.

The inflationary pressure comes from long-term suppressed interest rates (over a decade of rates being under 1 percent), quantitative easing (printing money) and rising energy costs.

The next meeting at the Bank of England is set for Thursday August 4th, and it'll likely be another raise.

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