Interest rates hiked to 5% as Bank of England fights inflation

The Bank of England raised UK interest rates to 5% at its June meeting today in its continued bid to tackle rising inflation by depressing consumer demand.

Are we reaching the peak for interest rates?

The peak for interest rates could be in sight, numerous investors believe. Samantha Fitzpatrick, fund manager of Murray International Trust, says: “We are only now seeing the huge knock-on effect on mortgage rates as previous deals are rolling off in significant numbers. This, above all else, may curtail future interest rate hikes here in the UK.”

Chris Clothier, co-manager of Capital Gearing Trust, added: “The market is forecasting a peak rate of just under 6 per cent for Q1 2024. Leading indicators are beginning to show the labour market cooling, and the impact of interest rate rises is starting to be felt on mortgage rates as mortgage holders come to the end of their fixed terms. We expect that this will eventually depress demand which, combined with energy and food inflation moderating, will eventually control inflation.”

What’s next?

While interest rates may peak soon, this does not mean the end of pain for consumers. Fitzpatrick points out: “Headline inflation is already falling sharply almost everywhere and should continue to decline over 2023 due to energy base effects. However, core inflation remains elevated, including here in the UK. It also needs to be remembered that even a lower positive number still means prices are rising, not falling, or even staying the same, so inflationary pressures will not disappear anytime soon.”