The Bank of England (BoE) has increased its base interest rate to 0.75%, the highest level since the start of the pandemic in March 2020.

At its latest meeting, the Bank’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to increase interest rates by 0.25 percentage points, to 0.75%. One member voted to maintain the base rate at 0.5%.

The BoE’s base rate was slashed to a historic low of 0.1% in March 2020 as the UK was hit by the first wave of coronavirus, before rates were increased for the first time in December 2021 to 0.25%, and then again to 0.5% last month.

The latest increase comes as the MPC warned inflation is expected to increase further to around 8% in Q2 2022, and potentially even higher later this year. A statement from the BoE highlighted the invasion of Ukraine by Russia as a direct contributor to inflationary pressure, which has led to further large increases in energy as well as other commodity prices.

“Given the current tightness of the labour market, continuing signs of robust domestic cost and price pressures, and the risk that those pressures will persist, the Committee judges that an increase in bank rate of 0.25 percentage points is warranted at this meeting,” the BoE stated.

Reacting the Bank’s decision, Killik & Co associate investment director, Rachel Winter, said: “The BoE had no choice but to raise interest rates today, as the escalation of geopolitical events has continued to feed the ferocious beast of rising inflation. This follows on from the Federal Reserve’s decision to raise rates yesterday.

“Whilst the Ukrainian crisis is by no means the sole cause of increasing inflation, it has certainly exacerbated the cost of living crisis. The global prices of energy and food will continue to rise as the UK seeks to phase out its use of Russian oil and find a way around a lack of access to Russian fertiliser.

“With individuals being squeezed by rising bills, shopping around for the best deals is essential. It may be worth considering locking into a fixed rate mortgage while interest rates are still at relatively low levels.

Senior personal finance analyst at interactive investor, Myron Jobson, added that mortgage holders are “facing a fiscal squeeze from every direction”.

“Higher interest rates will have an almost instant impact on the almost two million UK homeowners on variable rate mortgages,” Jobson added.

“The rate rise combined with the upcoming hike in national insurance contributions, rising energy prices and ballooning inflation threatens to push many households to financial breaking point.

“The impact on those on a fixed rate deal is less immediate, but the spectre of higher interest rates means that homeowners used to cheap borrowing and relatively slow-rising prices could be in for a shock when they remortgage.

“Mortgage rates are still low compared to yesteryear, and there are still many competitive deals in market. Anyone looking to buy or remortgage in the near future should consider securing a deal now.”

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