Bank of England’s interest rate hikes ‘make no difference’ to inflation, analyst

Interest rates have increased again (Image: GETTY) The Bank of England’s decision to increase the base interest rate to 5.25 percent will have no effect on inflation while making life worse for thousands of Britons, a group has warned. Laith Khalaf, head of investment analysis at AJ Bell, said: ‘Its own numbers show that more interest rate hikes will make almost no difference to inflation in the medium term. ‘But they will of course inflict more pain on consumers and businesses, and in particular mortgage holders. ‘Sometimes doing nothing is the hardest approach, but there is increasing evidence that’s the path the Bank should now be following.” He pointed to the central bank’s projections that inflation will fall to 1.4 percent if interest rates stay as they are, while hiking rates to six percent and then trimming them to 4.5 percent would get inflation down to just 1.5 percent. Andrew Bailey, governor of the Bank of England (Image: GETTY) Mr Khalaf explained: ‘This supports a pause in rate hikes, especially because the cost-of-living crisis engulfing consumers is currently being exacerbated by high interest rates. ‘The full effect of monetary policy takes around 18 to 24 months to ripple out into the economy, so a hiatus in rate activity would also give the bank more time to assess the impact of its past actions.’ Another strong critic of the central bank’s decision was Samuel Mather-Holgate, from Mather & Murray Financial. He commented: “Increasing rates, knowing the last rises haven’t been felt yet, and whilst inflation is falling, is absolute lunacy. Interest rates have increased again (Image: Getty) ‘Only one member of the Monetary Policy Committee wanted to maintain its previous level and they should be applauded. ‘This further rise will add misery to homeowners and those with business finance. An already lifeless housing market will shrink further into itself, not to reappear until Spring.’ The Bank of England has continually increased the base rate since December 2021 in efforts to bring down inflation to its target of two percent. Mr Mather-Holgate added: ‘The Governor needs to get a grip and reverse these hikes before the end of the year. ‘Thankfully, the next inflation print might just give him the impetus to pause and reflect on his insane mission to bash borrowers.” Inflation has been falling in recent figures dropping to 7.9 percent for the year to June. For the latest personal finance news, follow us on Twitter at @ExpressMoney_.