Bank of England Raises Interest Rates - Jacksons Accountants

Bank of England Raises Interest Rates to 5.25%

The Bank of England has decided to increase its main interest rate by 0.25 percentage points, making it 5.25%. This move was agreed upon by 6 out of 9 members of the Bank’s Monetary Policy Committee (MPC). The goal is to manage the balance between keeping prices stable and making sure the economy keeps growing.

The Bank’s main job is to make sure that prices don’t rise too quickly (inflation) and to help the economy grow steadily. The decision to raise interest rates came after careful discussions about the information in the August Monetary Policy Report.

The British economy has been a bit of a mix in 2023. The amount of money the country makes (GDP) has grown by about 0.2% every few months, which is okay but not fantastic. This slow growth is likely to continue because people are making enough money and spending in stores is strong. But there are some signs that things might slow down, like a drop in the way businesses and shoppers feel about the economy.

The job market, where people work, has been quite good, although recently it’s not been as tight. More people are out of work and there are fewer job openings compared to before. Even though some people are earning more money than expected, it’s uncertain if this trend will last.

Prices for things like food and everyday items went down a bit in June, which is good. The Bank thinks this will keep happening, and by the end of the year, prices might go up by around 5%. However, some services, like healthcare or utilities, might still be quite expensive.

According to the Bank, prices should be close to the goal of 2% by the middle of 2025. But they’re worried that prices could stay higher for longer, especially for things like wages and the prices of things made in the country.

Even though the Bank has raised rates before, they still think things are a bit tight. They want to make sure that prices don’t rise too quickly and that the economy doesn’t get wobbly. If they see signs of prices going up a lot and the economy struggling, they might raise rates again.

Most of the people on the Bank’s committee thought a small increase of 0.25 percentage points to 5.25% was a good idea to tackle the problem of prices going up. Some members wanted a bigger increase of 0.5 percentage points to 5.5% to fight the problem more strongly, while one member wanted to keep the rate at 5% as they felt the economy was already being slowed down enough. This decision shows the Bank’s careful thinking about what’s happening in the economy and how best to keep things stable.

Further reading: Bank of England Financial Times Jacksons Accountants