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The Bank of England raises rates to 5.25%

In its battle with inflation, it is entirely possible that the central bank knows it has pushed too far.

4 August 2023

The Bank of England increased the base rate by 25 bps to 5.25% as expected to a level last seen in March 2007. It was not an entirely unanimous decision however, with two members voting for a 50 bps hike and one voting for no change although the remaining six members voted for 25 bps. Its longer term inflation forecasts were moved higher, albeit only a little and the language in the accompanying statement shifted to include the need to be sufficiently restrictive in policy for a sufficiently long time. Another two 25 bps hikes are expected by markets for rates in the UK to peak out at 5.75% which will continue the mortgage pain for consumers as we move into general election territory in 2024. In its battle with inflation, which is now falling, it is entirely possible that the central bank knows it has pushed too far with the most aggressive hiking cycle we have seen for some time. UK economic performance at the top line is stagnating at best and the continuation of restrictive policy is not going to change this dynamic any time soon.

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Charles Hepworth

Investment Director
My Insights

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