The UK's interest rates have been on an upward trajectory in recent months, as the Bank of England attempts to combat rising inflation. In December 2021, the BoE's Monetary Policy Committee (MPC) voted to raise the base rate from 0.1% to 0.25%. This was the first time that the base rate had been raised since 2018.
The Bank of England has continued to raise interest rates in subsequent meetings, with the base rate currently standing at 5.25%. This is the highest level since 2008.
The Bank of England has said that it expects interest rates to continue to rise in the near term, but that the pace of increases will likely slow. The MPC has said that it is "committed to returning inflation to the 2% target".
The Bank of England is concerned that inflation is too high and that it needs to take action to cool the economy. However, the Bank is also mindful of the risk of raising rates too much, which could tip the economy into recession. For borrowers, it will mean higher mortgage payments and other loan repayments. This could put a strain on household budgets and lead to a slowdown in consumer spending. For businesses, higher interest rates could make it more expensive to borrow money, which could lead to reduced investment and slower economic growth.
Overall the outlook for UK interest rates is uncertain. The Bank of England will continue to monitor the economic data and make decisions about interest rates on a meeting-by-meeting basis.
The Financial Markets are still pricing in that the Bank of England base rate will remain above 5% throughout 2024 before starting to fall towards 4% in five years time.
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