Interest Rates Increase Again! 6% by The Year End?

Borrowing money has just more expensive. Entrepreneurs and small businesses were dealt another blow by yet another interest rate rise and predictions say they could climb higher by the end of the year.  

6% by the end of the year? 

The Bank of England raised interest rates at noon on June 22 from 4.5 % to 5%. Traders interviewed by the Daily Telegraph predict interest rates could reach 6% by the end of the year and stay that way until May.  

It signals the end of the post-COVID world of cheap money and will add pressure on mortgage payers and entrepreneurs alike. The government has ruled out food price caps and mortgage support that could have lent relief.

Why interest rate hikes?

 Ironically, the reason for the interest rate hike is an attempt to cool demand and tame inflation – a factor that is also the bane of the lives of entrepreneurs. 

Despite a string of interest rate rises, inflation stays stubbornly high, in figures released in May, at 8.7 % as household bills increase, forcing up the cost of living. It may have fallen from its latest peak of 11.1% last October, but the United Kingdom from the fastest rising household bills in the G7. 

“Hopes it will quietly fade away are fading.”

In the long term, interest rates and the cost of borrowing are corrosive to investment, according to economist Adrian Saville.

“It is more than two years since high inflation returned to the rich, and hopes that it will quietly fade away are fading,” he says. 

No truer word was said. By this time next year, interest rates are likely to be higher and inflation not much lower.

Meanwhile, the rest of the world is faring a lot better when it comes to inflation. Global growth is showing near-term resilience but with core inflation remaining stubbornly high, central banks will have to continue tightening policy in the coming months, says Fitch Ratings in its June Global Economic Outlook (GEO), released on June 21. 

With monetary policy adjustments and their impact on the economy proving more protracted, the global growth outlook for 2024 has deteriorated.

World activity is holding up better than expected and Fitch has raised its forecast for global GDP growth in 2023 to 2.4%, from 2.0% in the March GEO.

 The Bank of England has a lot of thinking to do.

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