The Bank of England is expected to unveil the biggest interest rate rise since the 1980s today (Thursday November 3) as it tries to control the runaway inflation which is battering British households.
In a crunch meeting, the nine members of the Monetary Policy Committee will make a decision that could push up the amount that millions of mortgage holders have to pay their banks every month. The consequential decision is expected to push up the Bank’s base interest rate from 2.25% currently to 3%, the highest since 2008. Mortgages are decided against this rate.
If – as expected – the Bank raises interest rates by 0.75 percentage points, it would be the biggest single increase since 1989. It will also be the eighth time in a row that the Bank hikes interest rates. Less than a year ago the rate was 0.1%.
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Earlier this month, markets had predicted the interest rate increase could be as much as one percentage point but sentiment has calmed somewhat after the change of Chancellor and Prime Minister and Bank of England bond purchases pushed down on the cost of borrowing. Markets have also witnessed a decreased appetite for large hikes globally.
The US Federal Reserve increased rates by another 0.75 percentage points on Wednesday, but signalled that while further increases were likely to rein in inflation, they may be smaller and it could slow the pace of future rises. The Bank of Canada also recently increased its interest rate by 0.5 percentage points, below the 0.75 percentage point rise which had been widely predicted.
Nevertheless, last month Bank of England Governor Andrew Bailey said it was likely the hike in interest rates could be bigger than the 0.5 percentage point increase to 2.25% seen at the previous meeting. The announcement will be made at 12pm today.
Meanwhile a leading trade union has warned that a hike in interest rates will plunge more workers into debt and financial hardship amid fresh evidence of the impact of the cost-of-living crisis. A survey of 6,000 adults for Unite found that just over half said they cannot or will have difficulty paying their household bills this year.
Almost a third said they have already gone into debt or increased the levels of their debt just to put food on the table. Unite said the survey, published hours before the decision on interest rates, also revealed that one in seven admitted they are facing food poverty.
Unite general secretary Sharon Graham said: “Unite’s research shows that many workers face unsurmountable financial pressure. An interest rate hike will shackle those workers with more debt while corporate profiteering runs rampant.”
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