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Ritaine is facing “difficult times” as the government and the Bank of England act to squeeze inflation out of the economy, Community Secretary-General Michael Gove has warned.
As the Bank’s Monetary Policy Committee raised interest rates to 1.25% on Thursday, Mr Gove said the UK was undergoing a “painful” economic “correction” as a result of the war in Ukraine and the effects of the pandemic.
This is the fifth time in a row that the price of the loan has risen since December. This is the first time levels have been above 1% since January 2009.
The bank has revealed that its economists now expect inflation to peak at just over 11% in October, when the next review of energy ceilings begins.
Speaking at The Times’ summit in London, Mr Gove said that while the government had a duty to help the “very poor”, the pressure on public finances meant it was unable to provide the level. to support the people he would like.
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“We need to be clear that while the government has a responsibility to help the poorest at a time when the cost of living is rising, we also have a responsibility to suppress the root causes of inflation,” he said.
“We definitely need to have a monetary policy that pushes inflation out of the system, and that will undoubtedly mean that we need to keep control of our finances and that we need to ensure that we are not overthrown in the next few years. out of our course.
“I think it’s inevitable that when you push inflation out of the system, you’re going to rely on the Bank of England and the government to have fiscal and monetary policy, which will inevitably mean we can’t do all the things we’d ideally want to do. to do to support people in difficult times.
“I think this is an inevitable consequence of the central bank’s policies that the United Kingdom and others have had to follow. There are inevitably difficult times ahead for the United Kingdom and the world economy. “
Mr Gove, whose department is responsible for the government’s “equalization” program, said it was essential to tackle regional inequalities in the UK, otherwise “problems across our country will continue and deepen”. .
He urged business leaders to look for areas outside London – including some of the places in the “red wall” that the Tories took from Labor in the last general election – when considering where to find new investment.
The MPC voted on Thursday by a majority of 6 to 3 to increase the bank’s interest rate by 0.25 percentage points. The three members of the minority voted for a more dramatic increase of half a point to 1.5 percent.
The pound initially fell one percent against the dollar after the announcement at noon, but recovered to about 0.4 percent.
GDP is projected to decline by 0.3% in the second quarter, which increases the chance of a recession, which is defined as two consecutive quarters of negative growth. In May, the Bank forecasts growth of 0.1% in the second quarter.
This move will mean higher costs for businesses and for millions of homeowners with mortgages or personal loans. For a buyer for the first time in London with typical mortgage bills of 250,000 pounds will increase by 30 pounds per month. For borrowers with a mortgage larger than £ 40,000, the increase will be £ 48.
However, the impact will not be felt initially by three quarters of borrowers on fixed transactions.
Interest rates are expected to rise further in the coming months, raising fears that the rapidly rising cost of credit will lead to a recession in the UK. Inflation reached nine percent in April, fueled by a spike in energy prices caused by the war in Ukraine.
Susanne Streetter, a senior investment and market analyst at Hargreaves Lansdown, said: “Inflation risks being a slow poison for the economy, so the Bank of England is trying to take the antidote now by raising interest rates.
However, he can only take a small dose at a time, given the sick nature of the economy. So, it remained with an increase of 0.25 percent to 1.25 percent, followed by more increases. He does not follow the recipe written by the US Federal Reserve for a more powerful drug for a steeper rise due to fears that a deep recession may follow. The US Federal Reserve raised interest rates by 0.75% yesterday, more than originally planned, given concerns about spiraling prices.
Andrew Hager, a personal finance expert at Moneycomms.co.uk, said: “The latest increase in mortgage payments will be a hammer blow to households up and down in the country facing a tsunami of rising spending on basic goods and services.
“These flat-rate customers will be protected for the time being, but when their flat rate comes for renewal, some will face a three-figure increase in monthly payments.”
Freetrade analyst Gemma Butroyd said: “Rising interest rates will spread across the market, hitting companies of varying intensity. We have already seen growing companies take a hit on stock prices, as high ratings seem even more difficult to justify amid rising interest rates. Now the sting is likely to be felt even among companies at reasonable prices. “
The move comes after the US Federal Reserve raised its base rate by 0.75% to 1.5% to 1.75% yesterday, its biggest rise since 1994.
The Fed has already raised interest rates twice this year, by 0.25% in March and another half a point in May.
Federal Reserve Chairman Jerome Powell said: “It is essential to reduce inflation. Inflation has obviously come up in the last year and new surprises can be expected. “
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