Should the BoE raise rates tomorrow?

The Bank of England will follow The Fed and raise the interest rate by 0.25%. This will spell disaster for households and businesses already struggling with higher borrowing costs. Millions of borrowers who fixed their mortgages and loans at lower rates will face the stark reality of their monthly budget being hit as their repayments will increase significantly. I've said it before and I will say it again: the MPC needs to get a grip and stop increasing the base rate, as it's not working, and is simply inflicting pain on millions of households.

Double-digit headline CPI inflation continues to spook the markets. However, it's worth noting that this is due to the high weightage in food costs, which continues to edge towards 20%. Nonetheless, green shoots are starting to pop up, and the Bank of England should take note of this as it shouldn't make the same mistakes the FOMC has done by assessing backwards-looking data. Wholesale food prices are continuing to trend down, and the recent Kantar and CGA figures show some promise in a possible decline in the months to come. The same effect should be felt with utilities, as lower wholesale gas prices should start to flow through to bills as well. All this means that inflation is more likely to fall in the near term than not. And with the UK now expected to narrowly avoid a recession, the Bank of England shouldn't plunge us into one due to their lack of insight.

I think it is too soon to raise them again. Standard mortgage rates are nearing 8%. For those needing to renew this year, the monthly repayment will be too high for them to meet. For landlords, new buy-to-let rates will be too high to make the property profitable. Then what? The crash? Hang onto your hats, folks.

Should the Bank of England raise the base rate? No, as it's unlikely the effects of the most recent hikes have kicked in yet. Will it? Yes, as not doing so when the Fed and ECB have just raised their rates could cause Sterling to weaken against the Dollar and Euro, which is inflationary as imported goods become more expensive. On the other hand, raising rates risks over-tightening and causing huge damage to the economy. Talk about being between a rock and a hard place.

It's difficult to see how any other outcome other than a rate rise can be expected from the Bank of England each time they meet these days. The headline inflation rate stubbornly refusing to drop by a significant amount does not allow the decision-makers any leeway. The more fundamental question is why those same power bearers continue to believe and utilise such a blunt lever to tackle inflation when all the evidence and data would appear to show little positive impact of recent hikes. Until external international factors are addressed, such localised tinkering is unlikely to do anything more than load further financial pressure on individuals and families already struggling to make ends meet. From a mortgage perspective, any change in the base rate will not directly influence payments for most or what lenders are willing to offer on a fixed rate deal but the almost 10% month-on-month increase in the more significant SWAP rates has already seen available rates rise for many.

In the face of sticky inflation, it seems increasingly likely that the Bank of England will seek to hike by a further 0.25%. This is largely priced in by mortgage lenders, and there is widespread expectation inflation and interest rates will fall late this year and early next.