The Bank of England has raised interest rates for the first time in about three years. On Thursday, the Monetary Policy Committee voted 8–1 to increase Bank Rate by 0.25% to 4%, after 11 months at 3.75%. The one member who disagreed, Catherine Mann, wanted a bigger rise, to 4.25%.
In this month’s Citrus Bites, Richard Harris explains why the Bank acted and what it could mean for you.
Inflation is the main reason. CPI rose to 3.5% in the 12 months to September, well above the Bank’s 2% target. The Bank has warned it could reach around 5% by the middle of next year. Much of the pressure is coming from energy. Richard looks at why problems in the Strait of Hormuz have pushed up oil and gas prices worldwide, even though the UK gets very little of its gas from the Gulf. With the energy price cap now at £1,723 a year and forecasts pointing to a further rise in January, household bills are likely to stay under pressure this winter.
Richard also covers the risk of “secondary inflation”. That’s when businesses pass higher costs on to customers, staff ask for higher pay to keep up, and prices keep climbing. For now, pay growth is only just ahead of inflation, and unemployment has edged down to 4.7%.
So what’s next for interest rates? Predictions vary. The Bank has suggested this may not be the last rise, and much will depend on what happens to energy prices. If you have a tracker or variable-rate mortgage, it’s worth understanding what further increases could mean for you.
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Watch the full episode above for Richard’s take on what it all means for you.
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