Interest rates – live: Rates hit 15-year high as ‘mounting cash pressures’ push Wilko to brink of collapse

Central bank hikes its base rate by a further 0.25 percentage points to hit 5.25

Bank of England raise interest rates to 5.25 per cent

The Bank of England has pushed interest rates to a fresh 15-year high, as it announced its 14th consecutive rise in the cost of borrowing.

The central bank raised its base rate by a further 0.25 points to 5.25 per cent on Thursday, the highest level since February 2008, as part of its ongoing bid to tame inflation by cooling Britain’s economy.

It comes despite the latest inflation statistics suggesting price rises had finally slowed by a greater margin than anticipated, with CPI inflation falling from 8.7 per cent in May to 7.9 per cent in June – the lowest rate since March 2022.

As economists eyed an end to the cycle of interest rate hikes, high street retailer Wilko filed for administration, putting some 12,000 jobs at risk. Having agreed a deal last year to borrow £40m from restructuring specialist Hilco, the firm said it was now facing “mounting cash pressures”.

Insolvencies in England and Wales surged last quarter to their highest level since the financial crisis, as firms were hit by tighter consumer budgets and rising borrowing costs.

Key Points

• Bank of England hikes interest rates to 5.25%
• Wilko to enter administration as it faces ‘mounting cash pressures'
• Economists eye an end to lengthy cycle of rate increases
• Rishi Sunak believes ‘light at end of the tunnel’ on inflation

[3 August 2023 08:04 · Andy Gregory]

Banks under pressure to pass interest rate rises onto savers

While interest rate increases spell further pain for borrowers, banks are under more pressure to also pass rate rises onto savers.

Myron Jobson, senior personal finance analyst for Interactive Investor, said: “There might be a bit more urgency among banks and building societies to pass on the base rate rise to their savings products this time around as the Financial Conduct Authority (FCA) has recently gained new powers to take robust actions against those offering unjustifiably low rates.”

The FCA this week shared a 14-point action plan to make sure that savers are being offered better deals.

[3 August 2023 07:30 · Namita Singh]

Both US and ECB hike interest rates to two-decade highs

Thursday’s announcement comes as both the European Central Bank and the US’s Federal Reserve hiked up respective interest rates to two-decade highs this week.

Both central banks opted for a 0.25 percentage point increase amid in the global effort to control rampant inflation.

[3 August 2023 07:00 · Namita Singh]

Economists eye an end to cycle of interest rate rises

Pressure on the Bank of England could be cooling as policymakers look set to raise interest rates further, but with an end to the prolonged hiking cycle in sight.

Experts think the latest UK inflation data has taken some of the pressure off the central bank, because it showed a bigger-than-expected slowdown in price rises. It means that rates – which are a tool used by the Bank to bring inflation down to its 2 per cent target – may not need to climb as high as feared.

The level could peak at about 5.75 per cent this year, according to economists from the likes of ING Economics and Deutsche Bank.

“Beyond this month (August), we’re sticking with our prediction of another increase in rates in September, at which point the present rate rise cycle should come to an end,” predicted Andrew Goodwin, chief UK economist for Oxford Economics.

[3 August 2023 06:30 · Namita Singh]

Rishi Sunak believes ‘light at end of the tunnel’ on inflation

Rishi Sunak said that although inflation is not falling as fast as he would like, he believes people can “see light at the end of the tunnel”.

Consumer Prices Index inflation was at 7.9 per cent in June – down from 8.7 in May and the lowest rate since March 2022 – but the PM needs it to fall to around 5 per cent or below by the end of the year in order to meet one of his government’s key pledges.

Mr Sunak told LBC’s Nick Ferrari: “I know families are struggling with the cost of living and that’s why I set it out as my first priority to halve inflation, and we’re making progress.

“Is that as fast as I’d like? No. Is it as fast as anyone would like? No. But the numbers most recently that we had show that we’re heading in the right direction, inflation is coming down, and I think people can see light at the end of the tunnel.”

[3 August 2023 05:30 · Namita Singh]

Investec predicts rate rise of 0.5%

Investec Economics has predicted the Bank of England will opt for a larger-than-expected 0.5 percentage point increase on Thursday.

But the firm expects it could be followed by a final quarter-point hike the following month before the cycle of interest rate rises comes to an end.

Laith Khalaf, head of investment analysis at AJ Bell, said: “The market is now expecting interest rates to top out at 5.75 per cent or 6 per cent by the end of the year, so has already pared back its bets from the height of inflationary panic when rates north of 6 per cent were envisaged.

“The Bank is still walking a tightrope though, as it tries to tame inflation without breaking the housing market.”

[3 August 2023 04:30 · Namita Singh]

Bank of England to issue new economic forecasts

In addition to its interest rate announcement, the Bank of England’s Monetary Policy Committee will draw up fresh economic forecasts on Thursday – which economists will also be closely watching.

(Aaron Chown/PA)

[3 August 2023 04:00 · Namita Singh]

Bank announcement means mortgage-holders ‘not out of the woods'

The Bank of England’s looming announcement likely means those with mortgages are “not out of the woods” yet, a broker has said, after data showed house prices fell in July by their largest margin in 14 years.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With another 25 basis points interest rate rise expected from the Bank of England later this week, we are not out of the woods just yet when it comes to rising mortgage costs.

“However, a few lenders, including HSBC, Barclays and Nationwide, have reduced their fixed-rate mortgage pricing on the back of better-than-expected inflation news. This has led to a calming of swap rates, which underpin the pricing of fixed-rate mortgages, after weeks of considerable volatility.”

The price of a typical home is now 4.5 per cent below the August 2022 peak, Nationwide said this week.

Noting that “investors’ views about the likely path of UK interest rates have been volatile in recent months”, Robert Gardner, Nationwide’s chief economist, said: “There has been a slight tempering of expectations in recent weeks but longer-term interest rates, which underpin mortgage pricing, remain elevated.

“As a result, housing affordability remains stretched for those looking to buy a home with a mortgage.”

[3 August 2023 03:30 · Namita Singh]

Bank of England expected to announce 14th consecutive rates rise

Hi, and thanks for joining us on the liveblog, as the Bank of England’s latest announcement on interest rates looms.

The central bank is widely expected to raise its base rate by a further 0.25 per cent on Thursday morning – in what would mark the 14th consecutive rise to the cost of borrowing.

The rise to 5.25 per cent would mark the highest level interest rates have hit since February 2008.