Expert Comment: Bank of England increases the interest rate for the 14th consecutive time

For the 14th consecutive time, the Bank of England raised interest rates today. As if taken from a Macroeconomics textbook from the 1950s, the Bank of England is adjusting the economy’s ‘thermostat’ and inflation will be controlled. But this is not the 1950s. It is not working.

Even if today’s interest rate hike was effective, it would not bring inflation down next month. The issue is the ‘transmission mechanism’, the channels by which an increase in the Bank’s interest rate impacts the economy.

According to their own research, when the Bank of England raises interest rates it takes nine quarters before the full effect on inflation is achieved. In other words, today’s interest rates will have its biggest impact on inflation in October 2025.

And since that research was published in 1999, there has been wide acceptance that these time lags in monetary policy have only grown longer due to the rise of fixed rate mortgages.

According to UK Finance, 800,000 fixed rate mortgages will expire by the end of this year and a further 1.6 million fixed rate mortgages will expire next year.

The rise of fixed rate mortgages also means that these interest rate rises have had little impact on households for months at a time, and then, when the fixed rate mortgage expires, the impact on household finances will be devastating.

A recession is imminent and as the inverted yield curves show, this will be a recession most deeply felt in Europe and North America. These are the regions in which central banks have raised interest rates month after month.

Families will suffer the double pain of job losses and the continuing impact of these interest rate rises. That is a heavy price to pay for economic mismanagement.