For the first time in a decade, the Bank of England is tipped to hike interest rates today. Following last
For the first time in a decade, the Bank of England is tipped to hike interest rates today.
Following last year’s Brexit vote, interest rates were dropped to a historic low of 0.25% as the Bank sought to reduce the cost of borrowing and encourage spending.
Now, with a devalued pound raising the cost of living—energy, transport and core goods chief among them—inflation is at a five-year high. As a response, markets are expecting the Bank to lift rates to 0.5%.
It’s hoped that an increase will stop the value of the British Pound from falling further. However, stabilisation could come at the cost of reduced economic output.
With British consumer spending sustained predominantly by borrowing, a rate increase is likely to discourage consumption and drive down GDP over the next 12 months.
Further increases will be dependent on a Brexit deal. A hard exit could see an extra 820,000 people out of work within 2 years, slowing the economy and discouraging further tightening of monetary policy.
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