Implication Of Mortgage Rate Hikes In The Uk

The UK market is facing currently inflation due to several factors in the market.

This has been caused by the conflict between Russia and Ukraine, subsequently the restriction on oil and other commodities being traded, post Covid recovery, House Price increases, cost of production for general goods and services have risen.

Now these are a mix of exogenous and endogenous factors resulting in inflationary pressure caused mainly by supply side factors.

These supply side factors are difficult to restrain and control hence demand side policies are used to manage the price rise.

The most effective policy is the monetary policy in the UK. The benefit of the monetary policy is that it is run by an independent Bank that is not biased towards UK politics. The Monetary policy committee can use the tool of interest rate at any given time to tackle macroeconomic factors. Price stability and Economic growth are important indicators to the Bank of England to govern stability and security.
Hence, the bank has been increasing the base rate in the UK from 0.1% gradually by 0.5-1% every 2-3months. This helps business and consumers to reduce their spending and borrowing and help the economy ease the inflationary pressure.
Due the rate increase, borrowing cost has increased and has affected the housing market significantly. Many buyers have considered renting over buying due to the large mortgage repayment. This in turn reduces the demand for properties and suppliers are forced to reduce the price to offset the fall in demand.
Subsequently the Aggregate demand reduces and lowers the inflation.
The inflation at the start of 2023 was near to 11% this has now reduced in April to 10.1%. Hence, showing as an effective measure to tackle inflation.