Bank of England's interest rate hike sparks fears of economic doom

Bank of England's Interest Rate Hike Sparks Concerns of Low-Growth Trap

The recent decision by the Bank of England to raise interest rates to a 15-year high of 5.25% has raised concerns about Britain's economy being stuck in a 'low-growth trap'. Chancellor Jeremy Hunt has warned of a detrimental impact on homeowners, as financial experts predict rates could rise as high as 6% in the next year. The Bank argues that the rate hike is necessary to combat increasing inflation, but some economists criticize the move, stating that it will inflict more pain on consumers and businesses without significantly impacting long-term inflation.

Impact on Mortgage Holders

The rise in interest rates has already affected mortgage holders, with variable rate plans doubling within weeks. This has raised concerns about the affordability of food and fuel for families. Additionally, the Welsh housing market has experienced a slowdown due to rising mortgage rates, with homeowners facing additional costs of nearly £24 per month on average.

Long-Term Outlook

The Bank of England has indicated that interest rates could remain above 5% until 2026 to tackle inflation. However, this decision has sparked protests, as Greenpeace activists staged a five-hour stand-off on the roof of Chancellor Rishi Sunak's family home, protesting against his support for oil drilling expansion. The Bank now faces the challenge of balancing the need to control inflation with the potential negative impact on homeowners and the wider economy.