Inflation will make rising interest rates “inevitable”
Despite the fact that the savings market is struggling right now, many expect interest rates to rise in the coming months as the Bank of England will be forced to respond to inflation.
Recently, inflation, as measured by the Consumer Price Index, hit 4.2%. This is the highest in 10 years and more than double the Bank of England’s 2% target.
In recent months, the Bank of England and central bank policymakers have hinted that rate hikes may be underway and Vasso Ioannidou, a finance professor at Bayes Business School, noted that those increases would come. as soon as possible.
He said: “Based on the latest figures, the inflation rate of 4.2% is more than twice as high as the Bank of England (BoE) target rate. It is significant that it is expected to rise further over the next few months, so it is inevitable that the BoE will have to raise interest rates and do so very soon.
“Rising inflation means a loss of purchasing power, as buyers can afford fewer goods or services with the same amount of money. “The loss in the real value of disposable income, currently projected at around seven percent, combined with tax increases, is significant.
“The current increase is largely due to rising fuel costs and double-digit hikes in energy prices. This affects low-income households more, as transportation and heating expenses typically represent a larger fraction of their budget. “