Bank Rate was last at 5.25% in February 2008.
The Bank of England’s Monetary Policy Committee has voted 6-3 to increase Bank Rate by 0.25% to 5.25% – the 14th consecutive rise.
Two members preferred to increase Bank Rate by 0.5 percentage points, to 5.5%, and one member preferred to maintain Bank Rate at 5%.
Interest rates have increased further despite lower-than-expected inflation figures for June which led to some lenders reducing their fixed rate mortgages.
The Bank says that although inflation in the UK has begun to fall, it is “still too high”.
The MPC now expects inflation to fall further to around 5% this year and meet the Bank’s 2% target by early 2025.
The latest Bank of England projections show Bank Rate rising to a peak of just over 6% and averaging just under 5.5% over a three-year forecast period, compared with an average of just over 4% for the equivalent period at the time of the May Report.
Today’s 0.25% rate rise will add £23.71 to the average tracker mortgage and £15.14 to the average SVR, according to UK Finance figures.
Adam Ruddle, chief investment officer at LV=, commented: “The Bank of England’s decision to raise interest rates by a quarter percentage point is in line with our expectations. There was a strong possibility of a larger increase but given the improving position of forward looking inflation indicators such as manufacturing costs, we believe the Bank will steadily increase interest rates over the coming months. This will balance the Bank’s role to retain price stability with the UK’s economic health. However, inflation remains more persistent in the UK, particularly inflation data excluding more volatile food and energy prices.
Though more painful for the economy, I believe that further rises are necessary to curb inflation. Importantly however, on the back of improving data, we believe the peak has fallen from 6.5% to 5.75% which suggests that the end of this hiking cycle is in sight.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “After 14 rate rises in as many meetings, it’s time for the Bank to press the pause button. Give this latest rate rise time to take effect and see how the markets react before deciding whether to continue with these rate increases. Consecutive rate rises have been painful; it’s time to let them do their job, rather than causing continued anxiety and distress for borrowers.
“The cumulation of 14 successive rate rises is significant. A borrower with a £250,000 mortgage on a tracker pegged at 1% over base rate will have seen their monthly payments rise from £943 in December 2021, when base rate rose from 0.1% to 0.25%, to £1,649 today.
“Lenders have already priced this increase into their fixed rates so we don’t expect pricing to rise. Indeed, a number of lenders have reduced fixed rates in the past few days on the back of calmer Swaps, which underpin the pricing of fixed rate mortgages. The extreme volatility we have seen in Swaps over the past few weeks has settled following June’s better-than-expected inflation data.
“However, while other lenders may reduce their fixed rates, long gone are the days of rock-bottom pricing.”
Katie Pender, MD at Target Group, added: “Today’s rise puts more pressure on homeowners, despite tentative signs of respite last week when some lenders slightly reduced rates on some mortgages. We are still fighting the inflation fever and we aren’t out of the woods yet.
“In 2023, 1.6 million households will roll off fixed rate mortgages, and face higher monthly payments. Lloyds has already warned that an increasing number of customers are struggling to repay their debts, and with very little guidance from the FCA in terms of forbearance measures – most of which penalise the customer in the long term – today’s rise again highlights how a review of mortgage support is required.
“For starters, a proper forbearance strategy is required, as current measures do not adequately address the issue – they actually make things worse. Forbearance is meant for short-term solutions – not the 18-month battle against rising interest rates we currently face.
“A healthy housing market is key to economic strength, and while taming inflation should remain the government’s priority, it’s also time to see what we can do better in terms of helping homeowners manage their debt, while also providing support to those most in need.”
Rozi Jones (Financial Reporter)