The Bank of England (BoE) is widely expected to increase interest rates by 0.5% later today as the cost of living crisis continues to plague the country.
Last month the Bank increased rates from 2.25% to 3%, marking the largest single rate jump seen since 1989.
And analysts have previously suggested that rates could top out at 4.5% by the middle of next year.
However, earlier this week inflation data came in at a lower-than-expected 10.7% with some analysts claiming it has peaked – some way below the 13% predicted by the BoE.
But with inflation still standing at more than five times the BoE’s 2% target should the Bank look to slow down the rises or should they plough on?
Broker members of PR platform Newspage give their take:
Riz Malik, director at R3 Mortgages:
“Rates should not be going up today but they will as everyone seems to be asleep at the wheel of UK Plc.
“Inflation is already decreasing and will continue to do so in 2023 and 2024 according to the Bank of England’s own forecast.
“Rate increases are going to disproportionately affect the least well-off in society and do little to speed up the decline in inflation.
“People still have to consume a minimum level of goods and services just to survive.”
Craig Fish, founder & director at Lodestone Mortgages & Protection:
“While I expect the base rate to rise by 0.5%, I do think that this is the wrong decision for today. Inflation has dropped based on the latest numbers, and whilst it’s still way off target, we are in recession and what’s needed is for the economy to be stimulated.
“This inflation is caused by factors way beyond our shores, and raising interest rates is going to do nothing apart from stifling growth.
“People are genuinely struggling, not spending money. If it were me, I’d be waiting until January, looking at the numbers from December and then making a decision in early February.”
Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial:
“The Bank of England has a mandate to keep inflation to 2% so feels it has no choice but to raise interest rates, but in reality this will make no difference in getting us back to target.
“By May, inflation will be very close to target once the shock effect of the war in Ukraine had on our energy bills is 12 months old.
“Domestic inflation will be negative by then as the economy will have crashed and stayed down. All the central bank is doing by increasing rates is making it more difficult for homeowners at a time when energy bills are already putting immense pressure on them.
“Increased energy bills and higher tax burdens are shrinking disposable incomes, doing the Bank’s work anyway, so there is no need to go further.
“All the Bank is doing is putting itself into a corner meaning it will have to cut further and faster in the Spring.”
Joshua Ellard, head of specialist finance & research at Finanze:
“Inflation fell in November to 10.7% from its 41-year high of 11.1% in October. While it may sound positive, it still means the price of goods and services is increasing at alarming levels, just at a slightly lower rate than the month before.
“This does little to ease the minds of those struggling with the cost-of-living crisis and is only accentuated by the fact wages have failed to keep up with the soaring cost of living.
“Many are suggesting we are past the peak of inflation, but this is unlikely to be the case. Unfortunately, the likelihood of this being the last hike is slim.
“We are expecting further increases up to 5%, until we reach a point at which the Bank of England has inflation firmly under control.”
Wes Wilkes, CEO at IronMarket:
“The BoE has to raise and should raise Bank Rate, it’s their only weapon.
“What we can’t forget, though, is that it’s a problem entirely of their own making. Like the US Fed, they didn’t pay attention to inflation properly and are so far behind the curve that it was already out of control, meaning rate rises had to be more aggressive and more frequent.
“As the economy is a lagging indicator, it will inevitably lead to recession and I wouldn’t be surprised to see them cutting rates in late 2023.”
Graham Cox, director at Self Employed Mortgage Hub
“I don’t buy into the argument that inflation was entirely due to supply chain shocks.
“There was also a huge increase in money supply during the pandemic, and once the economy re-opened, there was too much cash chasing too few goods.
“Raising interest rates was always necessary to protect Sterling against other currencies, particularly the Dollar.
“If we hadn’t done so, the Pound would have plummeted against the greenback, probably below parity. This would have been hugely inflationary given oil and gas are priced in dollars on international markets.
“That said, if inflation has peaked, it’s possible today’s Bank of England base rate hike is the last we see for some time.”
Lewis Shaw, owner and mortgage broker at Riverside Mortgages:
“The Bank of England is stuck between a rock and a hard place. Do nothing and they’ll be condemned by the Tory party who’ll seek to blame them for not controlling inflation even though anyone with a single brain cell knows the type of inflation we have is imported from external shocks and not demand/pull inflation.
“On the other hand, the only tool they have at their disposal to control inflation is to pull on the base rate lever so what are the alternatives?
“So should they raise rates? No. Will they? Absolutely.”
Ian Hepworth, director at Funding Solutions UK Limited:
“The UK needs growth. Given that we have full employment, we can grow through upskilling our workforce, investing in efficiency-driving equipment and innovation.
“All three need investment. Rising interest rates stifle investment. However, inflation is a thief. At these levels, inflation has taken away the equivalent of more than one month’s salary from people. It needs tackling. The books also need balancing.
“There is the dilemma: balancing the books and curbing inflation versus growth. Growth is likely to take a back seat for some time.”
Gary Boakes, director at Verve Financial:
“The dovish tone of the BOE in November as well as the withdrawal of all almost fiscal loosening seems to suggest that the BOE rises are going to slow.
“The problem is we have two fights inflation and GDPR and until we can get inflation dropping we can’t focus on GDPR.
“So if this base rate rises gets inflation falls quicker, then I am all for it, short term pain is long-term gain or so we hope.”
