As rising inflation puts pressure on UK consumers, the Bank of England has hiked rates by 0.25% with expectations of further increases this year.
As the UK consumer deals with a cost-of-living crisis due to price hikes in gas and power prices, Chancellor Sunak, under pressure from both sides of the house announced just before the Bank of England rate policy meeting, announced that the government will assist through some measures to the tune of £350 per household in aggregate on energy bills. With bills expected to rise by £700 per annum, this will come as some welcome relief to the consumer.
The Bank of England didn’t disappoint savers with a hike of 0.25%, as expected. Interestingly though, four members wanted to go further with a hike of 0.50%. That can be the only reason why bond yields across the curve are rising in tandem post the announcement. The 10-year yield is now at the same level as it was in March 2018, having gone through a tumultuous ride. Expectations are now for continual hikes in the months ahead, with some seeing a 1% base rate by May this year.
Inflation was always the issue and combatting it last year might have been the more obvious option for central banks worldwide. Now they are playing a speedy catch-up, however China’s covid-zero policy means supply bottlenecks are still present. These small moves won’t immediately exert downward pressure on inflation just yet – but at least the issue has been firmly acknowledged by policy setters – better late than never.
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