Bank fears six rate rises if inflation goes over 6%
The drifting Iran War could ultimately lead to six quarter-point base rate rises to counter inflation almost doubling to over 6%.
It’s now been revealed that yesterday’s decision by the Bank of England’s Monetary Policy Committee (MPC) to hold base rate at 3.75% was carried by eight votes to one.
However, four more members indicated that they would be inclined to vote for a rise in future if there appears no immediate resolution to problems caused by the closure of the Strait of Hormuz.
The Bank of England (BoE) also published new inflation estimates in the form of scenarios.
The worst-case scenario envisages the oil price remaining around $130 per barrel with UK inflation rising to 6.2%.
This would entail a base rate increase of between two and six quarter-point rises, taking base rate to between 4.25% and 5.25%.
The central scenario sees inflation rising to 3.7% this year, and probably two rate rises over the summer.
The BoE governor, Andrew Bailey, says:
“Higher prices for petrol and diesel have already pushed inflation up relative to our expectations before the conflict.
“Household utility bills… will follow and will mostly be affected when Ofgem’s next energy price cap for the third quarter takes effect.
“At this horizon, higher energy costs will also feed through indirectly to consumer prices as firms pass higher costs through their supply chains.”
Bailey also warns of food price rises to come as a result of inflated costs fertilisers, currently becoming more difficult to access because of the Strait of Hormuz closure.
He continues: “There is nothing the monetary policy can do to prevent these cost increases from affecting UK businesses and households.
“The longer the conflict in the Middle East continues, the worse the impact will become.”
Meanwhile a financial expert says competition between UK mortgage providers means those seeking loans to help house purchases need to be fleet-footed.
Simon Gammon of Knight Frank Finance says:
“There is considerable jostling for position among lenders. Those offering the most competitive rates are quickly inundated with demand and often need to reprice higher to manage volumes.
“This dynamic increases the risk of mortgage rates moving sharply on any negative news.
“Margins are extremely thin, meaning lenders have limited capacity to absorb volatility, and the combination of strong borrower demand and rapid repricing can create a snowball effect that amplifies rate movements.”
Kindly written by EstateAgentTODAY Image courtesy of Adobe
