Latest rate rise ‘could light a rocket under UK housing market’

The US central bank has raised interest rates to the highest level in 22 years - even though inflation in that country is down to 3.0 per cent from a high of 9.0 per cent last year. 

The decision lifted the Federal Reserve's so-called benchmark rate to 5.25 to 5.5 per cent and was the 11th increase since early 2022, when the Fed started raising borrowing costs to try to cool the economy and ease price inflation.

Likewise the European Central Bank has hiked its deposit rate, which is paid on commercial bank deposits left overnight with the central bank, to 3.75 per cent. This matches the previous record set in 2001.

In the UK, where inflation is currently 7.9 per cent, the Bank of England’s monetary policy committee is expected to raise its base rate on August 3 from the current 5.0 per cent.

The news from across the Atlantic has been greeted with pessimism by analysts in this country.

“The fact the Fed are still hiking when inflation is at 3.0% in the US will create fireworks at the next monetary policy committee meeting and could light a rocket” says Jamie Lennox of Dimora Mortgages, adding: “The odds of a [UK] base rate hike of 0.5 per cent in early August have now surely increased.”

And Lewis Shaw of Shaw Financial Services adds: “Even this relatively minor policy sneeze from the US could translate into a severe cold for UK house prices … Unfortunately, because the Bank of England was so far behind the curve when the inflationary spiral started, their hand is now forced, which inevitably means more pain for the UK economy.”