Bank of England raises the rate to 4.25% despite banking crisis

Following a week of financial market turmoil, the Bank of England has raised the base rate once again. The Monetary Policy Committee (MPC) voted by a majority of 7-2 to raise the rate by 0.25 percentage points – a less hawkish stance compared to preceding decisions. The base rate now sits at 4.25% and we should see the rest of the market adjust their saving rates accordingly in time.

This is the 11th hike in interest rates in a row, as the Bank responds inflation, which took a surprising jump to 10.4% in February, dampening expectations of easing pricing pressures.

The decision comes amid weeks of concern over the health of the banking sector, which has shaken financial markets throughout the world. While the danger to financial stability adds to forces that should drive down inflation, the annual rate of price rises in the UK remains in the double digits, emphasising the need to tighten policy even more.

Just earlier this week, markets anticipated that even a cautious hike would be abandoned due to the banking crisis surrounding Credit Suisse and Silicon Valley Bank. According to some experts, the events of recent weeks can be partly blamed on high interest rates pushing companies to withdraw their money rather than borrowing at a more expensive rate.

However, according to the Bank of England’s Financial Policy Committee, the UK banking system remains resilient, maintaining robust capital and strong liquidity positions. The assessment reveals that UK banks are well-armed to support the economy during a period of high interest rates.

But in unsettling times, it’s important to have peace of mind when it comes to your financial protection. If you have more than the FSCS threshold of £85k in savings, making sure your cash is diversified across multiple bank institutions means you are spreading the risk.



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