press release
Published: 03 August 2023

Expert comment: 5.25% interest rate: Is punishing the economy doing its job?

Below is an expert comment written by Dr Luciano Rispoli, Senior Lecturer in Economics, about the Bank of England's decision to increase interest rates to 5.25%

Luciano Rispoli
Dr Luciano Rispoli

"In yet a further desperate attempt to contain inflation, the Bank of England raised interest rates today. The fundamental question remains: has the BoE lost control over inflation? Recent data suggests only a timid reduction in UK CPI inflation, mainly driven by lower cost of energy – with other items like food inflation still being elevated despite the latest evidence of easing of pressures.

"UK CPI inflation remains higher still, compared to other countries in the eurozone. In this set up, the Bank of England needs to reflect as to whether punishing the economy with higher interest rates is doing the job or whether this is only causing more harm than good. Households and SMEs are already financially squeezed and further interest rates hikes might only result in more financial turmoil.

"With the UK housing sector already predicted to experience a negative trend comparable to nearly half the decline experienced during the 2008 financial crisis, this makes us question whether the Bank of England’s persistence in increasing rates will ultimately not lead to or even accelerate the event of a further housing crash."

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