The Bank of England (BoE) has announced it is increasing its base interest rate to 0.25%.
At its meeting this week, the Monetary Policy Committee (MPC), which sets monetary policy to meet the Bank’s 2% inflation target, voted by a majority of 8-1 to increase the base rate by 0.15 percentage points.
The BoE’s base rate had been sitting at its lowest level in history since March 2020, when the Bank first slashed rates to 0.1% as the UK was faced with the first wave of COVID-19.
Speculation that the BoE was to raise rates at the MPC’s December meeting had been growing, and following yesterday’s figures from the Office for National Statistics (ONS) that revealed CPI inflation had hit 5.1% – its highest level in 10 years – the Committee stated that the increase was “warranted” at its latest meeting.
“Although the Omicron variant is likely to weigh on near-term activity, its impact on medium-term inflationary pressures is unclear at this stage,” the Bank also said.
Commenting, CEO of national broker Loan.co.uk, Paul McGerrigan, described the rate increase as “terrible news” for mortgage borrowers.
“Those on tracker rates, SVRs and with fixed terms coming to an end will be hit, and after a difficult year this will mean a less-than-merry Christmas for many,” McGerrigan said.
“Whilst raising interest rates was inevitable at some point to dampen inflation, it would have been better to wait until February so that borrowers would have a chance to process their Christmas expenditure and plan for the year ahead.”
However, TMA development director, Lisa Martin, said that the move could now create a “great opportunity” for brokers to support remortgaging borrowers.
“While the prospect of a rate hike has already pushed some high street lenders to raise mortgage rates, the market does remain extremely competitive with overall rates still below March 2020 levels,” Martin commented.
“There is now a great opportunity for brokers to support remortgaging borrowers in this new climate by helping them to find one of the great deals that are still available at this time. For those with complex financial situations, seeking advice is also more important than ever, and brokers should act now to help their customers lock into appropriate, affordable products while they can.”
Commenting on the impact the rise may have on consumer spending, Killik & Co associate investment director, Rachel Winter, added: “Consumer confidence has taken a hit and spending has shifted from in-store to online as more people remain at home. Although businesses have spent the last 18 months adapting to a multitude of coronavirus measures and are now much more well placed to operate remotely, the outlook for the first quarter of 2022 looks rather bleak.
“Despite today’s rise, interest rates remain at relatively low levels. Savers should therefore continue to look for alternative ways to earn returns on their savings. With inflation so high, stashing cash or keeping it idle in banks should be avoided. Those looking to make their money work harder should consider investing as the stock market has historically delivered above-inflation returns over long time periods.”
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