Bank of England raises interest rates again

CLA Senior Economics and Rural Business Adviser Charles Trotman provides an overview of the recent interest rate rise and looks at the current rate of inflation

As expected, the Bank of England has raised the base rate to 3.5%, a 0.5% increase from last month. This represents the ninth consecutive increase since December 2021.

The Bank uses interest rates as its main tool to control inflationary pressures. The rise in interest rates has been inevitable as inflation has been steadily increasing since the end of the pandemic in September 2021. The aim is to try and dampen demand although higher interest rates mean higher borrowing costs and reduces the incentive to invest.

However, with many now saying that the current rate of inflation of 10.7% means that it may have peaked, it will be interesting to see whether the Bank of England will now begin to temper the need to continue with rising interest rates. Its latest economic forecast stated that the base rate would peak at 4.5% in the middle of 2023 before easing back.

A lot depends on how quickly inflation can return to its benchmark rate of 2%. Forecasts are suggesting that inflation will fall sharply by the middle of next year although it is unlikely to meet the benchmark until the end of 2023.