BoE: Interest Increase #15?
The Bank of England is due to have its interest rate meeting on the 21st September (today) - what does this mean for the UK?
UK economists will be busy bracing themselves for the Bank of England's interest meeting, given that the interest rates have repeatedly risen to cope with rising inflation rates. This has been reflected in daily consumer life, with increased mortgage rates.
The chances are that the interest rate will increase yet again, if only by 0.25%. But how does this affect the economy, and how does this apparently help soften the blow of inflation? By increasing the interest rate, it makes it more expensive to borrow money, meaning people will have to save more. If people save more, there is less money to spend on goods and services.
This has a knock-on impact: less demand for these goods will lower the prices, and thus slow down the rate of inflation. If the Bank of England does decide to increase the rate from the current rate of 5.25% to 5.5%, it will be the 15th consecutive rise and the highest rate seen since 2007.
The Bank of England's position as guardian of the interest rate has historically been complicated; it was the case that the government of the day influenced the rate, making politics directly affect economic matters. However, the Bank was given its own autonomy through the Bank of England Act 1998, allowing it to control the operational monetary policies of the UK. This separation means that political issues or principles in ideology can exist independently of the rate, which is how it should be.
I recently attended a lecture in Manchester and a professor remarked that in his opinion, the 2008 financial crisis is still ongoing, that we never really recovered, and everything in the UK has snowballed since. This stuck with me because when I look at current events (with admittedly young eyes), I point to Brexit and COVID - but the state of the economy never returned from pre-2008 levels.
I definitely believe the rate will be going up to 5.5%. I just don't know how people will be able to cope with the cost of living rising so steeply in such a short space of time.
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