The weakness of the pound and a surge in food prices continue to add to inflationary pressure in the UK, with the Bank of England is signalling a faster and steeper rise in interest rates to compensate.
Inflation reached a peak of 3,2 percent in November, falling to 3 percent in December, well above the 2 percent policy objective set by most developed economies.
On Thursday, the Governor of the Bank of England, Marc Carney, signalled that an interest rate rise would be brought forward to respond to recent economic developments. “Monetary policy would need to be tightened somewhat earlier and to a greater extent over the period originally forecast,” said Carney.
The projection now is that the next interest rate rise could be in May. The first interest rate rise since 2008 in the UK occurred in November 2017, going from 0,25 percent to 0.5 percent.
The rise directly affects 8.1 million households servicing a mortgage, although interest rates will remain at historically low levels.
The cheap pound has boosted exports and raised dividends for British multinationals, but it has also hit consumers hard by rising food and fuel costs and denting real income. Unemployment remains at historically low levels at just 4,3 percent, despite the fact that the British economy has slowed considerably.