Bank of England raises interest rate to 0.5%


The Bank of England again raised the base rate from 0.25% to 0.5%.

This latest hike follows an unexpected rate hike in December, when the base rate fell from a historic low of 0.1% to 0.25%. This latest rate hike is in response to increased inflationary pressures in the economy.

The Monetary Policy Committee (MPC) voted by a slim majority of 5 to 4 to increase the discount rate by this margin, with the four dissenting votes pushing for a higher increase.

The Bank of England said the latest move should help bring inflation back to its 2% target. In the minutes of the MPC, the Bank noted: “Inflation is expected to rise further in the coming months, reaching almost 6% in February and March, before peaking at around 7.25% in April. This projected peak is about 2 percentage points higher than expected in the November report”

MPCs noted that the bank may need to raise interest rates “a bit more”, in response, adding that “our job is to ensure that inflation returns to our target in a sustainable manner.”

The latest move is expected to drive up mortgage rates, putting financial pressure on households that are hit with higher fuel and food bills.

However, industry experts point out that the mortgage market remains competitive with a number of great deals still on the market. It should not dampen demand for mortgage products, especially in the short term.

Rightmove Director of Real Estate Data, Tim Bannister, says: “The level of demand we are seeing from homebuyers at the start of the year suggests that rising interest rates should not dampen the motivation to move.

“We saw a real desire from sellers and buyers to act and move at the start of this year, and that should offset the impact of higher interest rates on property prices. , at least in the short term.

Economist and former MCP member Andrew Sentence criticized the Bank for being “late”, tweeting: “Good, good, good! @bankofengland raises interest rates by 0.25% as expected. But 4 members wanted to go further. Where were those votes for raising interest rates in the second half of 2021 when there was a very good argument for a preemptive hike? MPC is behind the curve.

This jump in the base rate should put pressure on lenders to increase mortgage rates.

Rachel Springer, finance expert at Moneyfacts.co.uk, says: “Mortgage rates are on the rise. This rise in the base rate may be disappointing news for borrowers who are not locked into a competitive rate. Lenders are always throwing great deals on the market, so anyone still wondering whether to fix may be wise to do so now.

However, Kensington Mortgages director of capital markets and digital, Alex Maddox, adds that the market had anticipated this increase, and it has been priced into the financial markets that dictate the price of many mortgage transactions. As a result, he says, this latest rate hike may not have an “instantaneous pass-through to mortgage prices.”

He says lenders could use today’s decision to raise mortgage rates, making longer-term solutions a more attractive option for many customers.

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