The Bank of England have today announced a surprise increase in interest rates, from 5% to 5.25%, in a move seen by many as early action against a rising rate of inflation. While many analysts had been expecting a rise early in 2007, the exact time of the announcement came as a shock to many.
The catalyst for today's announcement seems to have been the increase in consumer price inflation, which has risen to 2.7%, the highest rate for more than ten years. Today's rate rise should also slow down the over exuberant housing market which was recently beginning to gather more momentum, although the rate rise will be an unwelcome present to many who have recently acquired new homes - some of whom have been stretching their finances to the limit in the pursuit of joining the property ladder.
While today's interest rate rise is sending a message to UK consumers, it will take some time to filter through into the economy, and market observers are expecting next month's consumer inflation rate to be even higher, with some forecasting a rate in excess of 3% - well above the governments 2% target. We can also expect the usual raft of warnings and comment from the government, as many voters will soon be feeling the pinch in the run up to the next general election.
Instances:
The interest rate announcement caused a fall on the stockmarket, where analysts are now trimming their economic and business growth forecasts for the immediate future. As we have experienced in recent times, we have something of a two tier economic cycle with many companies still struggling to survive, while the consumer continues to rack up vast amounts of debt in a spend spend frenzy.
In the small print of another announcement today, we also learned that housing repossessions are on the rise with many homeowners hit by interest rate increases towards the end of last year. After financing their house price purchases on tight budgets, today's increase will also cause heartache for many more on the property ladder.
While the Bank of England have been warning about a situation of "over exuberance" for some time, this rate rise will likely be followed by another in the short term as they attempt to nip in the bud, what could become a very uncomfortable situation. Financial markets are braced for further bad news on the economic front in the short term, although how far interest rates will need to rise is not yet clear.
One instance
留言列表
