Interest Rate Rises Not As Bad As Expected?

by | Friday 21st Oct 2022 | Mortgage News


In a statement today, the deputy governor of the Bank of England Ben Broadbent announced that the rate rises that we have seen in recent weeks and month might be more than we actually need. Meaning that the interest rate rises, and the outlook of the economy might not be as bad as expected or perceived.

Most economists, banks, and advisors predict that rates will get to around 5.25% by 2023 but the BOE have said that for the time being, there might not be a need for rates to get that high. Ben Broadbent has said that inflation was being driven by higher import prices on things like food and fuel, which should reduce as prices stabilise.

What Does Broadbent Say In The Report?

He specifically said “It remains the case that most of the overshoot in headline CPI inflation, relative to target, reflects the direct impact of higher import prices. It also remains likely that much of this is likely to fade as those prices stabilise. This appears already to be happening in areas most affected by the pandemic.”

He also comments on the results of inflation, the war in Ukraine and the pandemic on ‘real incomes’ in the UK. Saying:

“One often hears that real incomes are lower “because of” inflation. In some ways the opposite is closer to the truth: (domestic) inflation is higher because of (external) hits to real incomes. The economy has been hit by severe real shocks. The pandemic raised the global demand for goods and reduced their supply; Russia has cut back severely its supply of gas to Europe.

These have had dramatic effects on relative prices (Chart 12 shows the dispersion of inflation rates across the components of the CPI). In particular, import prices have risen significantly compared with the price of UK output. This has unavoidably depressed real incomes: the volume of output may have just about recovered to pre-Covid levels, but its consumption value has not.”

Graph Showing real national income over the last 25 years (Source:

What Does This Mean?

So, what does this mean? It seems that things possibly aren’t as bad as we think. In this report Broadbent says, although rather veiled, that essentially the country has overcompensated with interest rates and that rates perhaps needn’t be as high as they are or as high as they are predicted to be. He is confident that most of the price hikes on food and energy are purely down to conflicts in Ukraine and areas hit worse by the pandemic, once these have had time to calm down, prices and rates should go down too.

But he is very careful to not say this too overtly and we really will have to wait and see what the next 6 to 12 months holds. In a year where we have had 2 monarchs, 4 Chancellors of the Exchequer, and now 3 prime ministers, it really is too difficult to accurately predict what will happen with the economy. Hopefully whomever is chosen for number 10 by the end of next week will have a better plan of action than the previous!

If you or anyone you know is concerned about rising interest rates and just wants to talk through their financial situation with an expert, please feel free to give our advisors a call today for a free consultation. We are here to help.

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