Despite being close to their high, interest rates may yet climb further, according to Bank of England Governor Andrew Bailey.
Rate increases are “much closer now to the top of the cycle,” he told MPs.
In an effort to limit the fastest rate of price increases among the major economies of the world, the Bank has increased rates 14 times in a row.
Later this month, it is anticipated to increase borrowing charges once again, bringing the Bank rate to 5.5%.
According to the argument, increasing interest rates makes borrowing money more expensive, which reduces people’s purchasing power, lowers demand, and slows inflation, which is the rate at which prices grow.
On the other hand, inflation has remained persistently high, and the bank rate is currently at its highest point in 15 years.
Even though it decreased from 7.9% in June to 6.8% in the year to July, inflation is still much higher than the government’s target of 2%.
Mr. Bailey claimed there was information that suggested it might be slowing while addressing members of the Treasury Select Committee.
However, it was unclear by how much the pace of wage growth, which recently reached a record high, might slow down as a result. Increased wages may help inflation.
As he stated numerous times, “Many of the indicators are now moving as we would expect them to move, and are signaling that the fall in inflation will continue and… will be quite marked by the end of this year.”
“The question now is whether inflation expectations will continue to decline as headline inflation declines. And how will that affect pay negotiations? Added he.
The high increase in borrowing prices may have caused a slowdown in economic growth in Britain, but the Bank has been paying close attention to rapidly increasing earnings.
According to Mr. Bailey’s comments, rates may rise less in the upcoming months than the markets had anticipated.He emphasized, however, that the 21 September decision will still be based on the most recent data, including information on employment, growth, salaries, and inflation.
In addition, he reiterated past remarks by stating that interest rates might remain high for a time.
The rising rates have already affected more than half of mortgage holders, and many more are expected to feel the pinch when their fixed rate agreements expire in the upcoming months.
They could see an increase in their monthly payments of several hundred pounds or more.
Minimal development in four years
According to one expert, the UK economy has been “listless” since the pandemic began in 2019, with little to no growth.
The extra bank holiday for the King’s Coronation, which resulted in one fewer working day than usual, contributed to the 0.1% decline in May.
Both consumers and companies are feeling the pinch as a result of the growing cost of living and higher mortgage rates.
People may lose their employment in a shrinking economy, and it may be more difficult for them to obtain pay raises that keep up with inflation.
The yearly rate of inflation currently stands at 8.7%
In an effort to slow price increases, the Bank of England has been raising interest rates. However, this has had a knock-on effect on consumer borrowing costs, increasing mortgage and loan repayments for millions of people.
High inflation, according to Chancellor Jeremy Hunt, is hurting the economy.
“Reducing inflation as soon as feasible is the best strategy to restart growth and relieve family stress. We must follow through with our plan; it will work.
According to the Office for National Statistics (ONS), April’s rise of 0.2% was followed by a drop in economic activity in May.
Sales at pubs and bars decreased, along with the manufacturing, energy, and construction sectors, according to the report.
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