Interest rates hiked by Bank of England by 0.5 percentage points in tenth consecutive rise
The Bank of England has raised UK interest rates by a further half percentage point to 4%, but gave its clearest signal yet that borrowing costs may now be nearing their peak.
This was the Bank’s tenth successive interest rate increase, but in the accompanying documentation, it hinted that there is a chance it might be the last for the time being, saying that it would only raise rates further “if there were to be evidence of more persistent [inflationary] pressures” than in its forecasts.
Those forecasts suggest that inflation has now peaked, and that it will come down gradually this year and next, eventually dropping beneath the Bank’s 2% target.
“I do see the signs that we’re turning a corner, and that obviously is encouraging but there’s a long way to go,” Andrew Bailey, governor of the Bank of England, told Sky News in an interview. “There’s still some very big risks out there.”
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BoE governor explains interest rate rise
“We’re going to take it each game as it comes and look at the evidence very closely,” he added.
In raising interest rates again, the Bank pointed to wages in the private sector rising faster than anticipated.
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Chancellor agrees on rate hike
There are widespread strikes this week in the public sector as workers fight for higher wages. Mr Bailey said the Bank would be keeping a close eye on developments in this area, as they could contribute further to inflation.
“What happens going forwards on wage setting will be very important and we’ll be watching it very closely because that will be an important indicator of whether the very sharp downward path of inflation will happen,” he said.
The Bank also upgraded its general forecast for the economy on Thursday.
While it still projects a technical recession this year, it would be a very shallow recession, with overall growth falling by 0.5% in 2023, compared with its November forecast of a 1.5% fall.
“If it emerges now, it’ll be the shallowest recession in a long long time,” Mr Bailey said.
Ed Conway analysis: It’s clear the Bank thinks we are – or near to – a peak in interest rates
Seven members of the nine-person Monetary Policy Committee supported the half percentage point increase, but two members – Swati Dhingra and Silvana Tenreyro – voted to leave borrowing costs on hold.
All were told that while the increase today is significant, the hints included in the Bank’s minutes represent a marked change in tone.
Previously it had said that it was ready to respond “forcefully” to higher inflation; this time, that language was removed.
Previously it had said further rate increases might be required if the economy behaved in line with their forecasts; this time it indicated that rate increases were dependent on higher inflation than in its forecasts.
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Chancellor Jeremy Hunt has said the Treasury supports the Bank of England’s decision to increase the interest rate to 4%.
The shifts in language leave the door open for some small further increases in borrowing costs but provide the firmest signal yet that UK interest rates are now at, or close to, their peak.
Outlook still weaker than in recent years
Still, while the outlook for the UK economy is better than in the Bank’s previous forecasts, it is nonetheless far weaker than in recent years.
While the average UK growth rate pre-financial crisis was around 2.5% and around 1.5% post-pandemic, the Bank expects underlying growth of just 0.7% in the coming years.
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Moreover, because of the fall in national income projected this year, it now expects that the size of the economy will still be at 2019 levels in 2026 – a full seven years of lost growth.
Many other countries around the world have already exceeded their post-pandemic level; the UK, according to the Bank’s figures, is set to languish below it until the second half of this decade.
A spokesperson for the prime minister commenting on the figures said: “Inflation is the biggest threat to living standards in a generation, we support the bank’s action today. We will continue to take the decisions needed to reduce inflation.”
“This is a difficult time for mortgage holders in the UK. Inflation falling is not a given, it requires government to stick to the difficult decisions it has taken.”
On the subject of mortgage rates, Mr Bailey told Sky News that he was “hoping that we’ll see much more stability in the interest rate curve off of which mortgages are priced off.”
“That evidence is helpful, but there are a lot of people who don’t immediately benefit from that,” he added.
Conservative Party leader Kemi Badenoch has called on Sir Keir Starmer to sack Treasury minister Tulip Siddiq over allegations she lived in properties linked to allies of her aunt, Sheikh Hasina, the deposed prime minister of Bangladesh.
It comes after the current Bangladeshi leader, Muhammad Yunus, said London properties used by Ms Siddiq should be investigated.
He told the Sunday Times the properties should be handed back to his government if they were acquired through “plain robbery”.
Tory leader Ms Badenoch said: “It’s time for Keir Starmer to sack Tulip Siddiq.
“He appointed his personal friend as anti-corruption minister and she is accused herself of corruption.
“Now the government of Bangladesh is raising serious concerns about her links to the regime of Sheikh Hasina.”
Ms Siddiq insists she has “done nothing wrong”.
Her aunt was ousted from office in August following an uprising against her 20-year leadership and fled to India.
Ms Siddiq is also named with her aunt in Bangladesh court documents about meetings with the Russian government.
Tory leader Kemi Badenoch has called on Sir Keir to sack the minister
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As economic secretary to the Treasury, Ms Siddiq is responsible for policy on both the City and tackling corruption.
She referred herself to the prime minister’s ethics watchdog on Monday following the reports about the properties.
On the same day, the prime minister said: “Tulip Siddiq has acted entirely properly by referring herself to the independent adviser, as she’s now done, and that’s why we brought into being the new code.
“It’s to allow ministers to ask the adviser to establish the facts, and yes, I’ve got confidence in her, and that’s the process that will now be happening.”
Police in Aberdeen have widened the search area for two sisters who disappeared four days ago in the city.
Eliza and Henrietta Huszti, both 32, were last seen on CCTV on Market Street after leaving their home on Tuesday at around 2.12am.
The sisters – who are part of a set of triplets and originally from Hungary – crossed the Victoria Bridge to the Torry area and turned right on to a footpath next to the River Dee.
Eliza and Henrietta Huszti were last seen on CCTV in Market Street. Pic: Police Scotland/PA
They headed in the direction of Aberdeen Boat Club but officers said there is no evidence to suggest the missing women left the immediate area.
Specialist search teams, police dogs and a marine unit have been trying to trace the pair.
The sisters crossed Victoria Bridge before walking along a footpath next to the River Dee
The pair were heading in the direction of Aberdeen Boat Club on the south side of the River Dee
Further searches are being carried out towards the Port of Aberdeen’s South Harbour and Duthie Park.
Police Scotland said it is liaising with authorities in Hungary to support the relatives of the two sisters.
Chief Inspector Darren Bruce said: “Eliza and Henrietta’s family are understandably extremely worried about them and we are working tirelessly to find them.
“We are seriously concerned about them and have significant resources dedicated to the inquiry.”
The sisters, from Aberdeen city centre, are described as slim with long brown hair.
Henrietta Huszti. Pic: Police Scotland
Eliza Huszti. Pic: Police Scotland
Officers have requested businesses in and around the South Esplanade and Menzies Road area to review their CCTV footage for the early morning of Tuesday 7 January.
Police added they are keen to hear from anyone with dashcam footage from that time.
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