Interest rates go up for the first time in 3 years in Britain

In response to rising inflation and the rapid spread of the coronavirus Omicron variant, the Bank of England raised its main interest rate for the first time in three and a half years on Thursday.

This has stunned the market. They did exactly what history had told them not to do. Raising rates abruptly and unilaterally can have disastrous consequences.

During the financial crisis of 2008, the European Central Bank decided to raise rates without consulting the Federal Reserve of the United States or any other relevant party, which ultimately backfired and left a legacy of unemployment in some EU countries.

Following statistics this week that showed prices rising at their quickest rate in ten years, the hike to 0.25 percent from 0.1 percent was made.

The Monetary Policy Committee’s (MPC) decision implies that roughly 2 million homeowners will see their monthly mortgage payments increase.

On a £200,000 mortgage, the move will add about £14 per month to repayments.

The bulk of mortgage holders, however, will be unaffected by the increase because their loans are fixed-rate.

This increase comes after the government curtailed universal credit and announced plans to raise taxes starting in the spring, putting financial strain on people with variable-rate mortgages and businesses with greater borrowing rates.

“The Bank of England’s decision to raise interest rates was surprising, given mounting uncertainty over the economic impact of the Omicron variant,” said Suren Thiru, head of economics at the British Chambers of Commerce.

Economists forecast more rate hikes in 2022, with some estimating that the official cost of borrowing might reach 1% by the end of the year.

The decision, according to Paul Dales, chief UK economist at Capital Economics, meant that the Bank had become “a bit more hawkish” and that rates may now need to climb even further than previously.