Further interest rate rises are on the horizon as the Bank of England attempts to tackle inflation.
In May, inflation in the UK reached a 40 year high. The consumer price index rose to 9.1% from 9%, the highest since 1982.
Pressure is mounting as the cost of living continues to soar. As such, the Bank of England is looking to do “whatever is necessary” to suppress inflation.
UK’s cost-of-living crisis is going to worsen
Soaring utility bills, fuel prices, and food and grocery costs, is putting increasing pressure on household budgets. There is no sign of this situation abating, with this upward trend expected to continue.
The Bank of England expects inflation to surge from its current 9.1%, to around 11% by autumn.
Bank of England responding with interest rate hikes
Deputy governor of the Bank of England, Sir Jon Cunliffe, has stated that the central bank will “do whatever is necessary”, going on to say that it “will act forcefully”.
Over the 10 years prior to 2022, interest rates in the UK have remained fairly constant at record lows and consistently below 0.5%. However, soaring inflation has compelled the Bank of England to increase the Bank Rate. The rate was increased from 0.25% in December 2021, to 0.5% in February 2022, then to 0.75% in March. The rate was set at 1% in May, with an increase to 1.25% being agreed in June.
Increasing interest rates is a key way to control inflation, with hikes encouraging consumers to save more and borrow less.
A further vote will take place in August, with economists suggesting that interest rates could rise by a further 0.5%.
UK set for further economy difficulty over the next two years
The government sets the Bank of England an inflation target of 2%. However, with the upward trend we are seeing at present, this target could be some way off.
Inflation is forecast to continue to rise throughout 2022. The Bank of England has stated that it does not expect to reach the 2% target for at least another two years.
The UK is set to continue to face extremely difficult economic pressures as the cost-of-living crisis worsens. Further public sector strikes are inevitable as workers grapple with the pressures on their household budgets. This will impact the economy further as the disruption costs businesses. It remains to be seen how long it will take the country to ride out this extremely turbulent time.