Bank of England Governor Andrew Bailey
(Bank of England Governor Andrew Bailey)

UK’s cost-of-living crisis worsens as bank rate rises to 4.25%

The Bank of England (BoE) hiked interest rates for the eleventh time in a row to 4.25% on Thursday (March 23), in line with expectations, and pushing borrowing costs to fresh 2008-highs. The policymakers emphasized they would continue to monitor the domestic economic trends, stressing that additional tightening can be anticipated if data indicate that inflationary pressures remain elevated.

The BoE has been piling misery on households and businesses in a bid to chill spending to reduce inflation. By raising rates, people should, in theory, start to save more instead of spend, which will push down demand for goods and services and lead to lower prices. Higher rates also put downward pressure on house prices by increasing mortgage rates, which tends to knock consumer confidence.

(Source: Trading Economics)

Inflation rate in the UK unexpectedly edged higher to 10.4% in February. The rate of food price rises leapt above 18% last month, the fastest increase ever recorded by the Office for National Statistics (ONS). Furthermore, the cost of some everyday groceries has more than doubled over the last year, consumer brand Which? has found.

Meanwhile, private rent paid by tenants in the UK increased by 4.7% last month y-o-y according to the ONS which said the rise represented the largest annual percentage change since January 2016.

The average asking rent in London jumped 15% annually to reach £2,480 at the end of last year, Rightmove found in January, while asking rents in inner London climbed even higher to pass £3,000 for the first time ever.

The BoE’s move comes as the U.S. Federal Reserve opted for a much anticipated 25bps hike on Wednesday (March 22), raising rates for the ninth time in a row. Fed officials but signalled they only expect to sign off one more increase this year.

Across the Atlantic, European Central Bank president Christine Lagarde and her team are likely to opt for one more 50 basis point this year.