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The Bank of England (BoE) on Thursday raised the interest rates in the United Kingdom for the 14th consecutive time to 5.25% making it the highest it has been in 15 years, reported The Guardian.
As the UK’s central bank raised the interest rate it ruled out the possibility of recession in the next two years. It warned businesses and households that the policy rate will remain high for the foreseeable future.
The 0.25 percentage point increase done today was due to the strong wages growth in recent months.
The increase by the monetary policy committee (MPC) was announced after a split decision. Six members backed for the quarter point hike, two for a half point increase, and one for a pause.
The Guardian reported that the BoE’s MPC stated that the economy had shown more resilience than it expected during the high-interest rate period.
On inflation, BoE said that the strong demand for workers, is pushing wages higher, stating that the rise in the cost of services had reached its peak which is why inflation is not coming down.
The consumer prices index fell in June to 7.9% from 8.7% in the previous month, while the latest labour market data showed average wage rises stood at 7.7%.
BoE Governor Andrew Bailey said the policy hike meant inflation was on course to fall towards its 2% target.
“Inflation is falling and that’s good news. We know that inflation hits the least well-off hardest and we need to make sure that it falls all the way back to the 2% target. That’s why we’ve raised rates to 5.25% today,” he was quoted by The Guardian.
The BoE governor said that they were expecting the next inflation announcement to reveal that the prices have declined to around 7% in July. They also believe that inflation will hit about 5% in October.
The last time the UK had interest rates above 5.25% was in January 2008, when they were set at 5.5%.
As per CNN, the interest rate hike would be difficult to bear for over 2 million of the UK’s mortgage holders. They have already been facing sharp increases in their monthly mortgage bills when they are forced to refinance this year and next.
The cost of the average two-year fixed-rate mortgage was 6.85% on Thursday, compared with 3.95% last August, according to the financial product comparison website Moneyfacts.
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