0.25% interest rate hike to increase borrowing costs

The cost of borrowing is set to rise across Europe as the European Central Bank (ECB) announced it is to hike interest rates for the first time in over a decade.

By Kevin Mullan
Friday, 10th June 2022, 9:56 am

On Thursday ECB President Christine Lagarde announced the first increase since 2011 in a bid to tackle inflation which is running at 6.8% in 2022 across the eurozone.

She described high inflation as 'a major challenge for all of us' and said that the ECB Governing Council is raising interest rates to 'make sure that inflation returns to its 2% target over the medium term'.

"In May inflation again rose significantly, mainly because of surging energy and food prices, including due to the impact of the war. But inflation pressures have broadened and intensified, with prices for many goods and services increasing strongly," she said.

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ECB hikes interest rates.

Ms. Lagarde said the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting and that 'beyond September, based on its current assessment, Governing Council anticipates that a gradual but sustained path of further increases in interest rates will be appropriate'.

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Bank of England hikes interest rates to 0.25%

Individual, institutional and commercial borrowers are already facing more expensive credit in the north as a result of a series of interest rate hikes by the Bank of England since December.

Governor Andrew Bailey raised the Bank of England’s own interest rate (Bank Rate) from 0.1% to 0.25% in December 2021.

This was followed by a 0.5% rise in February, a 0.75% rise in March and a 1% rise in May.

The Bank of England is also aiming to keep inflation at 2%.

This week the ECB has projected that the overall rate of inflation in the eurozone is set to decline to 3.5% in 2023 and 2.1% in 2024.

Inflation excluding energy and food is projected to average 3.3% in 2022, 2.8% in 2023 and 2.3% in 2024, the ECB said.