The Bank of England raised interest rates for the 14th time in a row, this time from 5% to 5.25%, the highest level since 2008. The increase in the cost of borrowing money was expected, although financial markets were divided over whether it should Raising it to higher levels. 5.25 or 5.5 percent will go.
The decision is controversial. Paul Novak told the British newspaper before the interest rate decision: “With the country on the brink of recession, the last thing we need is another increase in interest rates.” Watchman. The Secretary General of the British Trade Union Organization TUC spoke of a “reckless” policy. “This will only create more misery for families and businesses, and put thousands of jobs at risk,” he added.
About the author
Dan Baliger is the newspaper's economics correspondent De Volkskrant. He writes about financial markets and central banks, among other things.
The end of this pain is not yet in sight. Financial markets assume that the British interest rate will peak at 5.75% by the end of the year. High interest rates are necessary to combat inflation. Inflation reached 7.9% in June, the lowest level in a year, but still several times higher than the 2% target.
Invest less, save more
The idea behind increasing interest rates is that banks, which have to borrow at a higher rate from the Bank of England, pass on the extra costs in the loans they make to households and businesses, which would cool their appetite for investment. The policy should also lead to higher savings interest rates, encouraging consumers to save more rather than spend.
The hoped-for result is a slowdown in the economy and increased unemployment. These developments should reduce competition between firms for scarce production resources, as well as the bargaining power of employees to negotiate higher wages. The Bank of England assumes that there will be no recession in the next two years.
New forecasts from the Bank of England show that monetary policymakers expect inflation to fall to 5 per cent by the end of the year. Only by the second quarter of 2025 would it have fallen to 2 percent.
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