The Bank of England has confirmed another increase to interest rates, raising its base rate from 4.25% to 4.5%.

This is the twelfth consecutive time the Bank’s Monetary Policy Committee (MPC) has increased the base rate to now leave it at its highest level since October 2008, at the height of the global financial crisis.

The MPC’s nine members voted by a majority of seven to two in favour of increasing the base rate by 0.25 percentage points, to 4.5%. Two members had instead preferred to maintain the rate at 4.25%.

Having gradually increased interest rates at every meeting since December 2021, when the base rate sat at a historic low of 0.1%, the BoE’s MPC has been attempting to tackle rapidly rising inflation. For Q1 2023, CPI inflation was 10.2%, an annual rate “higher than expected” at the time of the February and March MPC meeting, the Bank’s latest report revealed, with the upside surprise concentrated in core goods and food prices.

However, the Bank is expecting CPI inflation to fall sharply from April, in part as a result of large rises in the price level one year ago dropping out of the annual comparison. The BoE also suggested the Government’s Spring Budget, which saw the extension of the “energy price guarantee”, as well as declines in wholesale energy prices will both lower the contribution to CPI inflation from household energy bills. Food price inflation, however, is likely to fall back more slowly than previously expected, the Bank added.

“The pace at which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in bank rate so far,” the BoE’s latest MPC report said. “Uncertainties around the global financial and economic outlook remain elevated.”

Reacting to the latest base rate movement, fixed income investment specialist at Insight Investment, Andy Burgess, said the BoE had “no choice” but to raise interest rates by 25 basis points, given that headline inflation remains “stubbornly high”.

“The UK is the only major economy where headline inflation remains above 10%,” he commented. “Core inflation has also continued to surprise to the upside and growth has held up relatively well with the housing market showing some tentative signs of stabilisation.

“However, given the tightening already seen, we are not far from the peak in rates with only one or two rate hikes likely from here. We then expect the BoE to pause, in contrast to market expectations for rate cuts in the second half of the year.”

Head of fixed income research at Charles Stanley, Oliver Faizallah, added: “Going forward, the BoE has a very difficult job, navigating high inflation with a fragile economy. The Bank is likely to remain data dependent as they decide whether to pause or keep hiking.

“Policymakers and market participants will be looking closely for signs that show that the UK economy is finally giving in to the pressure of all the hikes to date, which would give them confidence that inflation will fall back to target sooner rather than later.

“Consumers and corporates alike will likely start to feel the strain, not only from higher base rates but also tighter banking lending conditions. As corporate and household debt refinancing becomes more expensive, a slowdown in inflation is likely to be seen, but the pace of decline, and impact on the economy is yet to be seen.”

With another base rate increase likely to further affect product pricing across the mortgage market, chief executive of mortgage and protection network Stonebridge, Rob Clifford, suggested there is “something of a disconnect” between the Bank’s base rate and mortgage pricing.

“It’s a tricky mortgage market for existing and would-be borrowers to unpick, and the need for professional mortgage advice in this environment seems greater than ever,” Clifford said.

“Movements in rates always hit the headlines, and can be of concern for borrowers, so advisers need to be using today’s announcement to make contact with their customer base and to outline the options that are available to them, particularly for those who are going to end up paying more as a result of today’s decision.”

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