Despite concerns of ‘stagflation’, the Bank of England has raised the base rate by 0.25% for the third time running as prices continue to surge. Now at 0.75%, the rate is sitting at pre-pandemic level.
Considering the growing scale of inflation combined with soaring energy costs, the decision to back the move comes as no surprise for the market who largely expect this to be followed with further hikes in the coming months.
While the wheels are now in motion, the Bank of England is concerned with expectations that high UK inflation will become deep-rooted in the economy, resulting in household and business pushing up their prices and wages.
Deputy Governor, Dave Ramsden said last month, “[…] We need to ensure that households and businesses recognise that we could not tolerate persistent overshoots of our inflation target […] And if necessary we need to take action to prevent that kind of persistence setting in.”
In a reminder to the public, the MPC’s summary confirmed that their responsibility to meet the inflation target of 2% and achieve price stability is clear.
The decision split of 8-1 – with the minority voting to remain – suggests the possibility for an additional rise at the next MPC meeting. This forecast is bolstered by fears of inflation rising to new heights. Economists expect it to exceed 8% later this year, the highest since the 1980s.
In today’s meeting, the committee clearly condemned Russia’s invasion on Ukraine, and stated their support for the UK and international government’s response. Also acknowledged was the succession of very large shocks to the economy – including the Ukraine conflict which has led global energy and tradable goods prices to rocket.
It will be worth keeping an eye on the economic fallout from the conflict in Ukraine, and how it may cause dilemma for the Bank of England, affecting future monetary decisions.
For those holding savings, now is a good time to actively switch to accounts that have pushed their rates up.
Money left inactive in high-street accounts will be earning little or no interest. Even if the best savings accounts don’t keep up with inflation, earning as much interest income as possible will help soften the blow.
On the Flagstone platform, we are now seeing banks increase their variable accounts interest rates in line with the Bank of England’s base rate rise. For more information on how Flagstone can help you grow your savings, speak to us today.