Biggest rate rise in 33 years as Bank of England caught between a rock and a hard place

Charlie Huggins, Head of Equities, Wealth Club

“A second 0.5 percentage point increase to the base rate in seven weeks will pile further pressure on consumers and businesses, at a time when many are already being strangled by the cost-of-living crisis.

The MPC will feel its hand was forced. The new Tory government is opening the fiscal taps, while on the other side of the pond, the Federal Reserve is tightening the monetary screws. Both factors have compounded pressure on sterling, which is trading at its weakest level against the dollar since 1985. A weak currency only fans the flames of inflation, given the UK’s reliance on imports.

The Bank of England is stuck between a rock and a hard place. A gentler approach to rate rises risks sending sterling into a tailspin, and seeing inflation get even further out of control. But too much tightening could easily choke the life out of the economy, without significantly easing the cost-of-living crisis. It’s a horrible balancing act, with seemingly no good outcomes.”