Bank of England Hikes Interest Rates to 5%

The Bank of England (BOE) raised interest rates by half a percentage point on Thursday due to unexpectedly persistent inflation. This move will put more strain on people with mortgages and will load additional pressure on house prices.

With this 13th consecutive hike, the main borrowing cost for commercial banks in the United Kingdom now stands at 5%, marking its highest level since April 2008.

The BOE is determined to bring inflation back to its 2% target and will take the necessary actions to achieve that goal.

Analysts anticipate that the BOE's benchmark interest rate will reach 6% by the end of the year, a level not witnessed in twenty years. This highlights the increasingly desperate struggle to control rising prices.

This is bad news for over 2 million UK mortgage holders who are preparing for a significant increase in their monthly mortgage payments if they refinance this year and next.

The likelihood of higher mortgage rates is expected to dampen consumer spending and raise the risk of a more severe economic slowdown in the UK, which has thus far managed to avoid a recession.

The BOE had little choice but to raise rates after official data released on Wednesday revealed that inflation remained stagnant at 8.7% in May, defying expectations of a slight decline.

In contrast to trends observed in the United States and Europe, core inflation, which excludes volatile food and energy costs and provides a better indication of the underlying price trend, increased last month, reaching a 31-year high.