Bank Base Rate increased as predicted to 3%

Bank Base Rate increased as predicted to 3%

12:28 PM, 3rd November 2022, About A year ago 3

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In an outbreak of predictability, when we all know the Base Rate is heading towards 4% to keep up with the Dollar and the Fed, The Monetary Policy Committee (MPC) voted 7-2 for an increase of 0.75% to a total 3%. The two dissenting Doves wanted increases of either 0.5% or 0.25%.

The MPC is trying to balance the deflationary pressure on CPI of the energy price cap predicted to last beyond the initial 6-month review period and the inflationary pressure this causes by boosting the relative buying power of domestic demand.

This decision has not incorporated any calculations to factor in what might be announced in the Budget statement on the 17th of November.

CPI inflation was significantly above the medium-term 2% target for September at 10.1% and the Bank is expecting this to increase further before the end of the year to 11%. Inflation will then fall back during 2023 as the energy price rises start to wind out significantly and in the medium term (2 years) the Bank is expecting inflation to fall sharply below the target 2%.

The published summary of the MPC decision said:

“In projections conditioned on the alternative assumption of constant interest rates at 3%, activity is stronger than in the MPC’s forecast conditioned on market rates, although GDP is still expected to be falling at the end of 2023. CPI inflation is projected to be a little above the target at the end of the second year. However, it falls more than a percentage point below the target at the end of the third year.

“The risks around both sets of inflation projections are judged to be skewed to the upside in the medium term, however, in part reflecting the possibility of more persistence in wage and price setting.

“The MPC’s remit is clear that the inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks continues, CPI inflation will return to the 2% target sustainably in the medium term. Monetary policy is also acting to ensure that longer-term inflation expectations are anchored at the 2% target.

“The labour market remains tight and there have been continuing signs of firmer inflation in domestic prices and wages that could indicate greater persistence. Currently announced fiscal policy, including the MPC’s working assumption about continued fiscal support for household energy prices, will also support demand, relative to the Committee’s projections in August. The Committee will take account of any additional information in the Government’s Autumn Statement at its December meeting and in its next forecast in February.”

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12:41 PM, 3rd November 2022, About A year ago

Increasing interest rates is the right thing to do to suppress/reduce demand side inflation BUT will do nothing to suppress supply side inflation of an essential items. All it will do is inflict hardship on millions of people and line the pockets of the banks and energy companies.


13:15 PM, 3rd November 2022, About A year ago

Reply to the comment left by Gromit at 03/11/2022 - 12:41
More people do not have a mortgage then do have one.
It will benefit those aged 60+ who paid mortgage interest of 14% pa, and until recenly got 0.5% interest on their savings.


13:58 PM, 3rd November 2022, About A year ago

Reply to the comment left by Olls63 at 03/11/2022 - 13:15
From the ONS:

This model estimates that in 2020, across all local authorities in England, there were 23.2 million households living in 24.7 million dwellings.

Of those 24.7 million dwellings, just under two-thirds (64%) were estimated to be owner-occupied in 2020. For most of this analysis, this is broken down further, giving the following four tenures:

8.8 million (36%) were owned outright

6.8 million (28%) were owned with a mortgage or a loan

4.8 million (19%) were privately rented

4.2 million (17%) were in social rent, mainly rented from housing associations and local authorities

UK Finance stated that 75% of moertgages are fixed leaving 25% on variable rate mortgages so about 1.7m

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