Interest Rate to 1.25 percent rise may not be enough

16th June 2022

The Bank of England today raised interest rates by another 0.25% taking them to 1.25%, the fifth meeting in a row where rates have been raised, in a bid to tackle high levels of inflation.

Zeeshan Syed, economic expert from the University of Salford Business School, said much more may be needed in future.

Zeeshan said: "There is a consensus that the bank rate must raise; however, the trouble was over how much it should increase. BoE rate is still among the lowest in its history; other than during the post-financial crisis period, the current rate only existed during the second world war. Raising the rate is the only way forward, as the ex-governor, Mervyn King, notes that BoE's inaction has already paved the way for fiscal mismanagement.

"The actual question for this MPC had to decide was how far to go with the rate rise. The MPC has only gone for another increase of 0.25%, this may not be enough.

“The breakdown of inflation suggests that people are consuming, spending, and borrowing as if there is no tomorrow. That is causing an upward inflation spiral.

“Recent data suggest that out of 9.5% of inflation, 5.5% is contributed by goods and services consumption. The threat is that the trend may balloon as EY predicts that consumer borrowing will increase to 7.9% this year, a five-year high.

“In this context, BoE is duty-bound to curtail this buy now pay later culture and inhibit the widespread and un-accounted for consumption. The more the bank increases the rate beyond expectations (above 0.50%), the more quickly this irrational exuberance will end, and fiscal sanity will prevail."