Investment - Articles - Bank of England raise interest rates for 13th time in a row

 “Today’s rate rise was more than expected and market expectations are for rates to peak at around 6% p.a. early next year, before falling back but remaining higher for longer, with the market also suggesting rates will stay above 4% p.a. for the next 4 years. Much of this expected tightening is already being reflected in mortgage rates, which will begin to bite harder as more and more homeowners roll off their fixed rate periods over the next few years.

 “The latest run of upside inflation surprises has seen interest rate expectations rise significantly and has caused further indigestion in the gilt market, which has been vulnerable to disappointing inflation data amid BoE gilt sales (quantitative tightening) and heavy issuance to fund a large government deficit.

 “One can imagine a benign way for goods inflation to fall, such as an easing in supply chains, falling commodity prices and re-orientation of demand from goods to services. However, labour-intensive service sector inflation does call for further action from the Bank of England, as it is a gauge of the domestic-driven inflation pressure the Bank can do something about. The Bank needs to tighten monetary policy to slow economic activity to the extent that demand for labour is reduced, and hence labour market tightness and wage pressures ease.”