Bank of England set to raise rates tomorrow

ended 05. May 2022

The Bank of England is widely expected to increase interest rates tomorrow in an attempt to curb soaring inflation. Economists are predicting rates will go up to 1%, but some believe the rate rise will be larger. Selection of Qs for you. No need to answer all of them. Please keep your responses to a paragraph or two.

  • Sky-high inflation is bad enough, so should the Bank be raising interest rates now or does it have no choice?
  • Will you and your business/charity be hit by rising interest rates? If so, how?
  • Many are forecasting a recession this year. How confident are you about the economy right now?
  • Should the Government be providing more support to households and small businesses/charities given we've effectively gone out of the pandemic pan into an economic fire?

20 responses from the Newspage community

The Bank of England can sometimes surprise us, and with the inflation figures looking like an explosion in a butcher's shop and set to get worse, it wouldn't surprise me if they go full tonto and bang a 0.5% rise on, taking the base rate to 1.25%. Admittedly it's a slim chance; nevertheless, there's a chance and can't be disregarded. I think we should be keeping rates low; all the inflation is brought on by supply-side shocks on commodities that people can't have less of, such as food, fuel, and energy. Making borrowing more expensive only pours petrol on the skip fire we already have in front of us and disproportionately impacts the most vulnerable and poorest in our society. If we continue down this road, a recession is inevitable.
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"This is the worst state the economy has been in for decades. I’m a money saving specialist and even I am struggling to make ends meet. The Government needs to wake up and act quickly because it's massively underestimating the scale of the crisis we're in. It's asleep at the wheel. Interest rates need to rise to contain inflation, but it's another massive blow to households and businesses around the UK."
It's a tough call - as they are under pressure to be seen to be doing 'something' and they really only have one lever to pull - interest rates. However, how much impact can this really have on inflation in the current climate? The bulk of the rise is not due to spending on luxuries like cars and holidays, but on price rises on essentials; food, fuel and energy. Added to that we have also just this month seen the increase in National Insurance contributions in people's pay packets. Increasing people's borrowing costs won't impact these rises, so why do it?
"With inflation at 7%, the Bank of England has no choice but to raise rates. The last time inflation was this high was 1991 and the Bank of England rate then was above 10%. However, there is a statistical quirk that may help the Bank and Government over the next few months. Remember, CPI is an annual change figure, and it was from April last year that inflation started to rise. This rise of 2021 is now the base number from which CPI is calculated. As this base number rises, prices today will have to rise at a faster level than this for the CPI number to continue rising. The result? We actually will have downward pressure on the headline inflation figure, potentially without the actual level of prices falling. If we do get lower inflation figures over the next few months, then it will be interesting to see how the Government, Central Banks, and markets spin this. My guess is there will be significant fanfare on this headline and point out that their actions are causing inflation to fall. Why? To try to reduce the inflation expectations. Would politicians tell lies or misrepresent statistics for their view of the greater good? No, that’s never happened before…"
"If, as expected, the Bank of England once again raises the base rate on Thursday, few believe that this will have a positive impact on curbing inflation. Our economy is already under the cosh and raising rates will increase the cost of living for many people who are already struggling to keep their heads above water."
"We are currently in the middle of a not so perfect storm - High inflation; Increasing interest rates; War in Ukraine; Controversy in parliament; Energy price troubles. The winners will be those who have a solid financial plan in place and do not react to these short term events. We know there are going to be challenges like this and we are here to navigate you through the storm."
Should the government be providing more support to households and small businesses/charities, given we've effectively gone out of the pandemic pan into an economoc fire? Damn right the government should be providing more support to households and small business/charities. We are in this mess down to all of their incompetencies, surrounding the many issues raised in the media, of late, since the pandemic, which rinsed most of the population in the country before its very eyes! Many small businesses were born out of the pandemic, so should be fully supported, with small business amounting to 5.5 million in 2021 supporting the economic growth of the UK. With many of these business owners having extra pressures such as the astronomical rising living costs. This government talks about levelling up, let it start by levelling up the support for those in real need. As far as I'm concerned, all members of parliament should be paying a percentage of their income to help this country
Having worked within the recruitment sector for almost 30 years, I can confidently tell you that the recruitment market is almost unrecognisable in the last year. There is a demand from employees to increase salaries due to the cost of living and the massive skill shortages in certain sectors. It is just not sustainable for many organisations, large and small. Companies are in battle with each other, increasing salaries and benefits packages to try and keep & attract staff, it's a fierce competition to get candidates in many sectors. It may sound fantastic to most reading this that they can increase their salaries but for how long? How long will they keep their jobs if the companies cannot weather this? Where is this pot of never-ending money coming from? Unless you are fortunate to work for the BP's of this world it's simply not possible for most organisations to maintain these rising employment costs. This isn't like it used to be, the fight to get 'the best' candidates, this is now a serious matter of getting anyone recruited in some cases! It cannot keep going on the same trajectory just the same as soaring inflation isn't sustainable.
Clearly, the U.S. Federal Reserve Bank have made a policy error by not being aggressive enough with monetary tightening in 2021 when inflation reared its huge head. Here in the U.K. the Bank of England have already been proactive and raised interest rates twice and should raise them again this week to try and quell rampant inflation. Sadly, corporate profitability and margins are being negatively affected throughout many businesses and charities whilst household incomes are also being impacted which will hurt the U.K. economy. The words stagflation and recession are bounding around the markets at the moment with U.K. GDP expected to experience its biggest annual fall since the collapse of the Soviet Union in the 1990’s Whilst its unlikely that a recession will occur this year there are predictions in the marketplace that we will get a major recession in late 2023 or early 2024. Sadly, the events in eastern Europe are creating a huge amount of uncertainty, therefore, predicting such issues like a recession are difficult. Whilst the Government was very reactive in supporting households, small businesses, and charities in the pandemic its becoming quite difficult for the chancellor this time around.
"The economy is rolling downhill towards recession and rate rises, which in theory will help curb inflation, could be coming too late. The Bank of England seems to be playing catch-up with inflation, and is now noticeably behind the curve. The Government needs to do a lot more to help the lower earners cope with rising rates and inflation, and they should impose a cost ceiling on energy costs for SMEs. It's absolutely brutal out there."
I have very little confidence in the UK economy right now, China's growth is flatlining and the US economy contracted last quarter - both due to the pandemic and disruption to supply chains. The Russian invasion of Ukraine is making the situation worse so I definitely expect us to be in a recessaion by the end of the year.
"Many UK businesses will be hit even harder by a further increase in interest rates. On top of soaring costs, inflation and supply chain issues, the outlook is extremely worrying if many don't receive the support they so urgently need soon. Our own research indicates that many business owners are increasing their own costs as a result, some by up to 30%. 1 in 10 businesses we spoke to said they may have to reduce personnel, scale back on investments and pull out of certain markets as a result. This only serves to amplify the domino effect this has on our economic recovery and cost of living crisis, if measures aren't put in place soon. The Government must do more. Waiting until the Autumn Budget later this year will only serve to stunt economic growth further. Supporting businesses now is an absolute necessity."
We have a current Cost of Living crisis that hasn't even fully filtered through to everybody, as the higher energy bills are just starting to drop on people's doormats. We have Government Ministers are arrogantly telling people to buy 'value brands' to manage their household budgets, as if many weren't already doing that. And we now have the Bank of England looking to hit people's pockets further by way of higher mortgage payments via higher interest rates. As I've said before, it's the wrong policy at the wrong time.
I feel BOE have no choice but to try and curb inflation by increasing the interest rates to support lower demand and slower economic growth. However we do expect the Bank to do so cautiously, as UK households are squeezed by the rising cost of living crisis. This poses even more threat to our first time buyers who are finding their home buying goal posts moved further and further away by rate rises and tighter affordability stress testing. Those looking to remortgage need to speak with a Broker to secure a low interest rate (medium to long term is possible) deal now while the low rates are still available, as they won't be for long. Lenders are withdrawing mortgage deals from the market daily, and I expect there will be a huge surge of deal changes tomorrow following a BOE increase.
The Federal Reserve is expected to hike it's base rate by 0.5% this week. To keep sterling competitive, the Bank of England may feel compelled to follow suit, so a 0.5% increase to 1.25% wouldn't surprise me. Otherwise the pound will fall in value, adding to inflationary pressures. A recession does look likely unfortunately. But perhaps all the extra cash being taken out of peoples pockets will dampen inflation and we'll course correct in short order.
I think that we will likely see the Bank of England keep raising interest rates, until inflation stops rising. Its almost obliged to, as its one of the key metrics its tasked with tackling. At the same time the government is unlikely to be providing more support, due to fears this will increase inflation even more. It looks like we are finally starting to pay for the lockdowns and large amounts of money that were pumped into the world economy during Covid. Recession is a very real prospect if inflation does not slow down.
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"Interest rates are rising and there could be a long way to go yet given the extent to which inflation is out of control. The inflationary pressure on small businesses is proving unbearable for many and there's no guarantee raising interest rates will alleviate it. The Government should be focused on supporting small businesses and households who are under a massive strain. Instead, billion pound companies announce huge profits and avoid tax. Until we tackle big business and start taxing the billionaires proportionately, things won't get any better for us at the bottom. The economic system that the everyday business has to operate in is massively outdated and hugely biased towards the wealthy, especially under this Tory government."
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"Small businesses like my own are currently stuck between a rock and a hard place. Rising costs mean that if we want to keep any of the money we make, we need to raise our prices. But if we raise our prices, our customers will be even less likely to shop with us because they can’t afford to do so. Thrive, survive or fade away."
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"I am being forced to rely more and more on credit than I want to. Interest rates going up will likely mean bigger bills on any debt, putting more pressure on my finances. And it goes without saying that we will see little, if any, uplift in savings interest. I simply can't see how a recession can be avoided at this point, given the impact of the pandemic and the added costs that Brexit has created. And all this time, our ministers have for the most part been feathering their own, their families' and friends' nests. The massive expenses claims that many MPs make, while their constituents have to decide whether to pay rent, utility bills, transport costs to get to work, or buy food, are a disgrace. Our government has zero interest in the public good. They have proven this time and time again, with their lies, their dodgy deals and their complete refusal to take responsibility for their actions."
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"I have no confidence in the economy right now and interest rates rising feels like another blow. My sales have taken a huge hit since February. With rising costs, comes consumer caution. People are spending less just as small businesses are having to spend more across the board and it's a scary time right now. I am personally in the process of applying for a part-time job to ensure I can afford to pay my own bills because my forecasts show there isn't going to be enough money in the business to pay myself in the months ahead. The government is trying to claw back the billions spent on the pandemic and I understand that, but it's going to be at the expense of small businesses and unfortunately I predict a huge surge in unemployment come the winter."