- Bank of England’s Denial of Intentional Recession Induction
- Higher Interest Rates Aimed at Curbing Inflation
- Impact on Mortgage Holders and Borrowing Costs
The governor of the Bank of England has denied attempting to induce a recession after the institution raised interest rates by a greater amount than anticipated to curb skyrocketing prices.
The Bank raised interest rates from 4.5% to 5%, the greatest level in fifteen years. Many analysts had anticipated a lower increase.
It will result in higher payments for those with loans and a significant number of mortgage holders, but it should be beneficial for consumers.
Andrew Bailey, the governor of the bank, stated that if rates were not raised immediately, “the situation could become worse in the future.”
“I understand the difficulty and suffering that this causes for many people,” he continued, referring to the unexpected interest rate decision.
Karen Ward, a member of Chancellor Jeremy Hunt’s economic advisory council, stated on Wednesday that the Bank had “been too hesitant” in its interest rate hikes thus far and urged it to “create a recession” to curtail rising prices.
She stated that if businesses felt “nervous” due to rising interest rates, they would be less likely to raise prices. Employees would also be less likely to request pay increases, a factor that contributes to inflation.
Mr. Bailey, however, stated that the Bank was not attempting to “precipitate a recession.”
“Many people with mortgages or loans will be understandably concerned about what this means for them,” he continued. “However, inflation remains too high, and we must deal with it.”
He added that compensation increases “cannot continue” at the current rate to reduce inflation.
As interest rates have risen over the past year and a half, mortgage rates have skyrocketed.
The current average two-year fixed mortgage rate is 6.19 percent, while the five-year rate is 5.82 percent. In June of 2012, these rates were closer to 3 percent.
Those with a typical tracker mortgage will incur an additional £47 per month. Those with standard variable rate (SVR) mortgages will see an increase of £30.
Since December 2021, tracker monthly payments have increased by £465 and SVR monthly payments have increased by £297.
Additionally, borrowing costs are likely to rise. Current average annual interest rates for bank overdrafts and credit cards are 21.86% and 20.13%, respectively.
The Bank is attempting to demonstrate it is in control of inflation, the annual rate of price increase, which was much higher than anticipated in May and far above levels seen in other nations.
