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Bank of England warning: ‘Risk of recession’ as rates of interest could rise next week | Personal Finance | Finance

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The Bank of England’s Monetary Policy Committee (MPC) is about to verify a possible rate rise on Thursday, June 16, 2022. This could represent the fifth consecutive rate of interest by the financial institution in a row in a bid to mitigate the impact of inflation, which is currently at nine percent. Last month, the Bank announced that the country’s base rate would rise from 0.75 percent to at least one percent

Many experts imagine that an rate of interest rise will happen next week, mountaineering the bottom rate even further to 1.25 percent.

If this were to occur, this may be the primary time since January 2009 that the bottom rate was higher than one percent.

Financial analysts are warning that any hesitance on the Bank of England’s part to intervene could end in the pound being weakened.

A good weakened pound would end in the price of fuel going up within the UK, which is already being affected by the war in Ukraine and pressures within the wholesale gas and electricity market.

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On top of this, experts imagine that inflation is more likely to hit ten percent in the approaching months which suggests further rate of interest increases may very well be crucial.

Inflation and fuel price hikes have exacerbated the UK’s cost of living crisis, with energy bills expected to hit £2,800 by October.

In consequence, many households will probably be looking towards the Bank of England on Thursday to ease their concerns concerning the economy.

Laith Khalaf, the top of investment evaluation at AJ Bell, shared why he believes the “risk of recession” is more likely to rely upon the bank’s decision.

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Mr Khalaf explained: “The Bank of England faces a stern test of its mettle at the subsequent rate of interest decision, and any hesitation is more likely to end in the pound being punished on the currency markets.

“Sterling has already fallen around eight percent against the dollar this yr, though markets are pricing in a fifth consecutive rate of interest rise from the Bank of England in June, so any signs of dovishness could weaken the currency further.

“The issue is that the Bank is caught in a pincer movement, with eye-watering inflation on one flank, and the danger of recession on the opposite.

“News that the common cost of filling a family automotive is about to breach £100 landed on the identical day the OECD forecast the UK will probably be the weakest G7 economy in 2023, which sums up the bind the central bank finds itself in.

“By raising rates of interest, the bank is putting the brakes on an economy that’s already slowing of its own accord. That risks the economy stalling, or worse, going into reverse.”

Citing the recent support payments announced by Rishi Sunak last month, the financial expert outlined why this latest intervention has provided “respiration space” for the Bank of England.

He added: “The Chancellor’s latest package of measures to deal with the price of living crisis does alleviate some pressure on the Bank, offering up a little bit of respiration space to lift rates.

“Consumers probably won’t be best pleased to seek out that among the fiscal giveaways they’ve been handed by the Chancellor are going to be devoured up by higher borrowing rates.

“But when the Bank fails to take motion and the pound comes under further pressure, that also adds to the price of living crisis, by pushing up the value of commodities priced in dollars, especially fuel. It appears like there are simply no good options in front of the Bank of England.”

Moreover, the expert highlighted the potential ramifications an increase in rates of interest would have on homeowners across the UK.

“A rate hike will feed through into higher mortgage rates, though the effect on consumers is more likely to be a slow burn, as homeowners roll off the fixed deals which became so popular as rates plummeted,” Mr Khalf said.

“On the flip side of the coin, we are able to expect higher returns for money savers, who are actually seeing significantly higher rates of interest on offer, though they probably should seek them out. In fact, that’s a wholly pyrrhic victory with inflation heading into double digits.”

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