Bank of England increases interest rates to 4%

The Bank of England (BoE) has announced another rise to interest rates to take its base rate to 4%, its highest level for 14 years.

This is the tenth time in a row that the Monetary Policy Committee (MPC) at the Bank has increased interest rates, after lifting them by 0.5 percentage points from 3.5% at its most recent meeting.

Interest rates have been steadily rising since December 2021 in an effort from the BoE to curb soaring prices, while inflation has remained close to a 40-year high. In its latest forecast, the Bank has indicated that interest rates should peak to around 4.5% in mid-2023.

The MPC, which voted by seven to two in favour of a 0.5% increase, stated that “UK domestic inflationary pressures have been firmer than expected”, while the labour market “remains tight by historical standards”.

It also suggested that the extent to which domestic inflationary pressures ease will depend on the “evolution of the economy”, which includes the impact of the 10 consecutive increases in the base rate so far.

“There are considerable uncertainties around the outlook,” the Committee stated. “The MPC will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation.”

Reacting to the tenth rate increase in a row, CEO at fintech brokerage Loan.co.uk, Paul McGerrigan, said: “The MPC clearly believes it will take a further 0.5% base rate increase to reduce spending further and keep the downward momentum on inflation.

“This risk with this level of increase is the impact on economic output and property prices, but it’s clearly a risk the MPC is prepared to take. Forecasters believe rates will top out at 4.5% and traders are starting to price-in a reduction in base rate in quarter four this year to boost output as inflation comes under control. A clear plan, but a fine balance and an unenviable task for No.10.

“Homeowners in non-fixed rate products will immediately feel the pain, as will those with fixed rates ending. It’s a time of disruption and important decisions, so it’s vital the financial services community plays its role holding the hands of borrowers through it.”

In terms of mortgages, the increase in the Bank’s base rate means that those on a tracker mortgage will pay an estimated £49 more a month, while those on standard variable rate mortgages are facing a £31 monthly jump. This also comes on top of every increase so far, following the previous rate rises since December 2021.
 
Proposition director at PRIMIS Mortgage Network, Vikki Jefferies, added: “The forward planning from lenders and brokers across the mortgage market means that, while today’s decision will see the cost of borrowing increase for borrowers on tracker mortgages across the UK, many fixed mortgage rates should remain somewhat insulated from any significant impact.

“We have already had a positive start to 2023 in terms of rates reductions, and we are optimistic about what this means for borrowers over the next year.
 
“However, as the cost of living crisis and energy crisis continue to bite, affordability will remain an issue for many homebuyers and brokers should be prepared to address these challenges. Most importantly, brokers should make sure they dedicate the appropriate time and resources to fully understanding their customer’s financial situation, so they can help them find the most suitable deal, both in the short and long-term.”

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