It is likely that Januarys expected wage bargaining, which brings with it unwelcome spikes in earnings growth, was a factor in the BoEs decision making, as well as the data it received regarding Decembers inflation levels.
This move to raise interest rates further is also a sign that the Bank itself is alarmed by what it is hearing, especially considering that recent reports have shown that the public certainly expect inflation levels to remain as high as they are right now.
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The Bank however is confident that the country can function well on these elevated interest rates; the corporate sector is healthy and producing mixed signals about inflation, with continued support from the external economic environment and strengthening within the labour market.
Speculation has recently arisen though, concerning the biggest push factor in the BoEs decision. Critics believe that the powers that be certainly keep more than half an eye on other areas of the economy, choosing to base their decisions on a fair bit more than just the economic data they are given concerning price pressures.
The principle concern is that the Bank might be trying to take the steam out of the housing market by sending a clear message to borrowers that they cannot count on the future stability of interest rates.
Homebuyers are advised to keep in mind that the new set of quarterly inflation forecasts are due out next month, something that could well mean that the BoE once again decide to raise rates. If this is indeed the case, then the housing market may see an abrupt decline over the course of the next few months.
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