UK Financial Pains after the Biggest Interest Rate Hike in Three Decades

  • Why is the UK inflation at a high rate?
  • How does the BoE predict Britain’s recession?
  • Could the interest rate hike lead to curbing inflation?
  • What measures could lessen the pressure of the living costs?

The Bank of England has predicted that the UK could be in recession for two years. It has set the biggest interest rate hike in decades to control increasing inflation. It is the eighth time in a year that the Bank of England has raised the interest rate. There are concerns over the impact of increasing rates on households’ budgets.

Raised Interest Rate

Bank of England has warned of the UK’s longest recession in one century. The recession will last for five quarters, as the Bank of England sets the biggest interest rate hike in 33 years. The inflation rate hit 10% in September and will rise even further by the end of 2022. Bank of England has warned of a very challenging period and raised its interest rate from 2.25% to 3%. The increase will not be enough to reduce the double-digit inflation rate.

British Pound Slides

After the Bank of England announced the biggest interest rate hike in more than three decades, the British pound fell. The pound sharply dropped against the US dollar by over 2% after. The burden of the biggest interest rate hike will be on homebuyers with variable-rate mortgages. British households have gone through months of economic chaos and the UK home market is already fragile. The new interest rate will cause pain while working people pay the price for the government’s economic failures.

Owning Home Issue

It is not easy to own a home or rent one in the UK and housing issues can be traced to many financial problems. Firm construction is important to meet local housing needs across the country. There is a lack of affordable homes and buying a property was a challenge for a British family. BWithy the biggest interest rate hike, many homeowners face more expensive monthly repayments. The higher mortgage will weigh on British households’ spending for some time.

More Poor Families

Higher monthly house repayments will put more British people into poverty in the coming year. The Joseph Rowntree Foundation assumed that homeowners have to pay more than half of their monthly incomes on housing costs. British families with a mortgage are already in poverty, spending 38% of their monthly income on house payments. Those who do not own a home could also experience extreme financial pressure. Mortgage turmoil would increase rents sharply to help homeowners pass on their higher loan costs.

Protection Needed

Citizen’s Advice has found one in four people could not afford a monthly increase in their mortgage payments. According to poverty experts, almost half of households have to struggle to pay monthly rise of mortgage payments. That means homeowners and private renters will be dragged below the poverty line over the next few years. The biggest interest rate hike in decades will be a perfect storm. The current crisis and financial uncertainty will become even worse for lower-income households.

Curbing Inflation

Food bank campaigners have warned against the rise of interest rates. They worry the struggling families could no longer afford their expenses. The interest rate hikes will increase households’ expenses and squeeze the family budget. It is the job of the Bank of England to bring inflation down and it made its eighth interest rate hike in less than a year. Raising interest rates is the quick way to curb soaring inflation, but that will cause more hardship for some families.

High Food Inflation

Rising food and energy costs have already stretched household budgets to their limit. Rising food costs have driven UK inflation to a double-digit, a four-decade high. More than a quarter of Britons had to use credit cards to buy food and a fifth have borrowed money. The UK is close to a food crisis with rising prices that have left families on low incomes. Food inflation has put significant pressure on customers and would not ease off soon.

Food Security

Britain highly depends on food imports, thus it is vulnerable to volatile food prices. Brexit has shaken food prices because Britain gets the vast majority of what it imports from the EU. There are people in the UK who cannot afford to get access to enough food. They experienced moderate or severe food insecurity throughout the past few years. Rising food prices pushed UK inflation to a 40-year high and the country Britain needs a long-term strategy to solve the food issue.

Interest Rate vs. Inflation

Bank of England believes its biggest interest rate hike in decades could contain soaring inflation. It aims to make people spend less on goods and services. Accordingly, the increasing interest rates will reduce the UK’s soaring inflation. After the Covid pandemic, consumers spent more but there were not enough goods in the market due to worker shortages. Therefore, goods prices have increased while soaring energy added to the charges. The higher interest rates may help control inflation by making it more expensive to borrow money.

Profits & Inflation

The biggest interest rate hike in decades will force UK’s struggling families into poverty. According to the Unite Union, the Bank of England must tackle the profits to address soaring inflation. Profits in the UK’s top companies are up by 47% which is driving inflation. The Unite Union has warned rising inflation and interest rate will put more British households into debt and financial hardship. More workers will be in debt and financial hardship and will pay their bills with more difficulty.

Tories’ Failed Policies

Working people in the UK have paid the price for the government’s failed policies. The ruling Conservative Party has been involved in political uncertainty. Two prime ministers quit while the country has been stuck in economic chaos. People blame the Conservative governments for the central bank’s rate rises. The biggest interest rate hike since 1989 while inflation will still stay above 5% in 2023 and unemployment will rise to 6.5 by 2025.

Financial Challenges

The UK economy is on a downward spiral and the country could face a long recession ahead. Inflation and living costs have weighed on British households and businesses. Bank of England has set the biggest interest rate hike in thirty years to keep inflation under control. However, the new interest rate could cause more anxiety among people, after months of economic chaos. The UK government must understand the public demand and address the financial challenges decisively.

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