Bank of England base rate climbs to 5.25%

The Bank of England (BoE) has announced another base rate rise which takes interest rates to 5.25%, their highest level since the global financial crisis 15 years ago.

Rates have risen by 0.25 percentage points following the fourteenth meeting in a row in which the Bank’s Monetary Policy Committee (MPC) voted on a rate increase.

The MPC, which sets monetary policy to meet the Bank’s 2% inflation target, has been gradually raising interest rates since December 2021 when they sat at a historic low as 0.1%.

The Committee, which at its last meeting had opted for a 0.5 percentage point increase, this time voted by six to three in favour of the 0.25 percentage point rise. Two members had voted for a more aggressive 0.5 percentage point rise, while another member was in favour of maintaining the rate at 5%, as the MPC members continue their attempts to curb the rate of the UK’s high inflation.

Consumer Prices Index (CPI) inflation in the UK has come down from a peak of 11.1% in October last year and was at 7.9% in the 12 months to June, according to the Office for National Statistics (ONS), the lowest rate of price increases for more than year.

However, this is still almost four times the BoE’s 2% target and the key reason behind interest rates climbing once again. Food has been one of the biggest drivers of inflation and food inflation remains much higher than a year ago, although the pace of food prices did fall to 17.3% from May’s 18.3%, according to ONS data.

In its statement published today, the BoE said the MPC would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy, including the “tightness of labour market conditions” and the “behaviour of wage growth and services price inflation”.

“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required,” the Bank also indicated.

The latest base rate rise will again have a knock-on effect on rates in the mortgage market, which must now price in a fourteenth change since December 2021.

“The hope is that because this was very much expected, it won’t spook the markets which is the last thing anybody needs,” commented national director at Just Mortgages, Carl Parker.

“Even with the wider volatility, we are beginning to see some really positive signs. News of lenders improving rates – if only marginally for now, and a rise in transactions in June are both incredibly encouraging.”

CEO at fintech broker, Paul McGerrigan, said: “It was a sure bet that the MPC would make its fourteenth successive rise in interest rates in an attempt to ensure inflation continues its downward trend. The feeling is they will go again at least one more time.

“Wielding its blunt tool of rate hikes heaps further misery on those with tracker and variable mortgages, as well as placing a slow stranglehold on other borrowers.”

However, McGerrigan did also suggest that there is “a silver lining”.

“Economic indicators hint that inflation should continue on a steady – if slow – downward trajectory, meaning that interest could be close to peak bringing relief to mortgagees towards the end of the year,” he continued. “It will depend on whether increasing wage strength continues to put pressure on persistently high inflation in services, and the level of impact on global commodity prices events in Ukraine and India have.

“For now, it will be for advisers to be on their toes to assist those struggling with interest rates which have stretched them too far.”

Looking ahead, proposition director at PRIMIS Mortgage Network, Vikki Jefferies, added: “Industry players need to continue considering ways to address this in their support for customers, particularly now that the new Consumer Duty regulations are in force.

“By working together proactively to secure the best outcomes for their customers, lenders and brokers will be better equipped to navigate this period and help ease any concerns borrowers may have.”

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