The Bank of England has voted 7-2 to increase interest rates to 4.25%, marking the 11th increase since December 2021.
This decision comes in response to an unexpected rise in inflation, which now stands at 10.4% according to data from the ONS.
Economists had previously anticipated a pause in interest rate hikes, believing that inflation was on a steady decline.
However, the recent rise in inflation, following a 41-year high of 11.1% in October, has put the Bank of England under pressure to take action to regain control over the situation.
The US Federal Reserve has also been battling inflation, raising interest rates for the ninth consecutive time.
Despite recent turmoil in the banking sector following the collapse of two regional banks, the Federal Reserve remains committed to addressing high inflation, stating that “some additional policy firming may be appropriate.”
Reaction
Vikki Jefferies, proposition director at PRIMIS:
“The Bank of England’s decision to raise the base interest rate to 4.25% today, despite increased economic uncertainty following the failures of SVB and Credit Suisse, has once again driven home the need for borrowers to seek professional financial advice when choosing a mortgage – one of the most important decisions of their life.
“While the base rate rise will have an impact on the mortgage market, particularly for those on tracker mortgages, swap rates actually decreased over the last week amid rumours that the base rate might remain at 4%. Therefore, we should not expect a surge in mortgage rates and we are confident that any rise in mortgage rates at all will be measured, and unsurprising to industry lenders, who are working to ensure that mortgage products remain as affordable as possible.
“The mortgage advice sector exists to help consumers navigate periods like this, and it is important that brokers are taking the time to get to know their clients so they can provide them with the best advice possible for their individual needs.”
Nicky Stevenson, managing director at national estate agent group Fine & Country:
“Yesterday’s unexpected hike in inflation has convinced rate-setters that now is not the time to call a halt on interest rate rises.
“It will be another bitter blow to homeowners on variable rates and tracker mortgages, who would have been optimistic that uncertainty in the banking sector might have put a pause to these successive interest rate rises.
“Instead, with inflation still hovering in the double-digits, they face yet another painful squeeze on their household finances.
“Meanwhile, prospective home-buyers will have been glad to see that the average fixed rate mortgages reached a six-month low this week. They will be watching closely to see whether this latest rate rise causes them to move in the opposite direction.
“If they remain stable, this will inject another dose of confidence into the property market just in time for the busy Easter period.”
Reece Beddall, sales and marketing director, Bluestone Mortgages:
“While today’s decision is clearly in response to inflation’s surprise jump to 10.4%, it will be a tough pill for consumers to swallow nonetheless. Interest rates have risen consecutively for almost a year, pushing mortgage repayments higher still and putting a chokehold on people’s personal finances. Affordability challenges will no doubt remain for the foreseeable future.
“For those who are struggling amid the current economic environment, know that there is still help at hand. For those customers experiencing difficulty keeping up with their mortgage repayments, it’s vital to get in touch with their lender as soon as possible, and for those looking to take their first or next steps onto the property ladder, speaking with a mortgage broker is a sensible step. It is the duty of our industry and at the heart of what we do to ensure customers are signposted to the appropriate support to help make their homeownership dreams a reality.”
Stuart Wilson, chair of Air Club:
“With concerning noises across the global banking sector this month and the recent news that the Fed will hike rates in spite of an unsettled market, it’s fair to say that this MPC decision has attracted more interest than the last.
“The situation is becoming more complex every day, putting greater pressure on advisers to explain the facts as they matter to their clients, their savings and their future options. With the volatility of the mini-Budget now in the rearview mirror – and fresh from the Chancellor’s newly laid plans last week – the outlook for the months ahead is a positive one for the sector, but the importance of specialist advice is at an all-time high.”
Adam Ruddle, chief investment officer at LV=:
“The Bank of England’s decision to raise interest rates by 0.25 percentage points is in line with our expectations. The Bank is in a difficult predicament. On the one hand, inflation in February unexpected increased leaving the UK inflation higher than the US and Eurozone. On the other hand, there are some signs that previous increases are weakening the housing sector and hurting the economy; added to that, the recent banking turmoil is in itself a disinflationary pressure. We believe the Bank has sought to balance these considerations whilst remaining clear that managing inflation down is its key responsibility – even if that means subdued economic growth.
“While an increased rate helps tackle inflation it hinders economic growth, increases mortgage payments and squeezes living standards. This week’s figures showing a rise in inflation shows that rising prices remains a stubborn, and potentially domestic, problem. I believe the Bank may continue to raise interest rates to 4.5% over the coming months.”
Avinav Nigam, cofounder of real estate investment platform, IMMO:
“This latest increase in interest rates was expected given February’s uptick in inflation to 10.4%. Unfortunately, rising interest rates have major consequences for the housing market. There is an immediate increase in the cost of mortgages for the circa 2 million borrowers on variable-rate mortgages, which could mean an increase in the supply of properties for sale, with negotiating power shifting to buyers.
“Even so, a significant reduction in property prices is not anticipated since demand for homes is strong and continues to grow. Higher interest rates, alongside labour and material price inflation, mean that building new homes is getting harder and more expensive. Many projects are being paused, reducing future supply further still.
“Higher interest rates further reduce aspiring homebuyers’ ability to afford to purchase a home, reducing demand. The result of this is more demand for rental housing, and therefore a greater need to put time, money and effort into improving our private rental sector housing stock. Institutional investors appreciate that as interest rates rise, investing in and improving rental housing makes even more sense commercially and socially.”
Alex Lyle, director of Richmond estate agency Antony Roberts:
“A hold in base rate would have been very well received, helping support the momentum we are currently seeing in the housing market, with prices holding up on large family homes with A-star addresses and the volume of sales in the first quarter up considerably compared with the same period last year.
“Even though some areas have proven remarkably resilient to increasing interest rates, this has been less the case the higher they have risen. Further rate rises are most unhelpful so hopefully base rate is close to its peak.”
John Philips, operations director at Just Mortgages:
“This latest 0.25% rise may feel like a step in the wrong direction for the mortgage market but it’s widely accepted to be a necessary step in the battle to curb inflation. Although the base rate has gone up we have seen mortgage prices falling in recent months and customer enquires to our brokers across the country have been remarkably robust since the start of the year. The advantage of yet another rate rise is that nobody should be caught off-guard and I think that brokers are doing a tremendous job in managing the expectations of clients and finding them the right deal.”
Adam Oldfield, chief revenue officer at Phoebus Software:
“The will they, won’t they of the past few days has now been settled and for most it’s not the decision they were hoping for. Unfortunately, there are many factors weighing heavy on the global economy and recent events in the banking sector have added further to the turmoil. The unexpected rise in inflation announced yesterday, along with the half a per cent rate rise by the Fed, no doubt gave the committee grist to the mill.
“There is the suggestion that the rise in inflation last month was a temporary blip, and we should start to see the numbers coming down again soon. If this is the case, it’s hard to see that the Bank of England will have any cause to put the base rate up again in its next meeting. The problem is that we were just starting to see the housing market moving again, so the news of another increase could well give people further pause for thought.
“The only light is that we’ve seen lenders reducing rates in the last week, so perhaps they may not be as quick to put rates up if current swap rates are baked in. Nevertheless, for those on SVRs or trackers it’s a worrying time and lenders, I’m sure, will be getting their houses in order to ensure exposed borrowers get the support they need.”
Tomer Aboody, director of property lender MT Finance:
“Following the unwelcome news that inflation has risen again, it was inevitable that interest rates would have to follow suit in order to try to get the former under control.
“While the government’s target of halving inflation by the end of the year might now look slightly optimistic, many believe that the right course of action is being adopted in the background.
“There are concerns that further rate rises could result in further issues for the banks, but let’s hope there is enough stability to counter that risk and that this rise is the penultimate, if not the last, before the Bank can start reducing base rate.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“There is a close call between change and no change – this latest rise in rates is a huge disappointment for the housing market as we were hoping the Bank would trust in its own data and leave well alone.
“Activity is slowly beginning to pick up after a very quiet last quarter of 2022 and the housing market is so important to overall economic prosperity. Of course, it is important to reduce inflation as far as possible in view of its impact on buyer confidence to take on debt. Overall, the economy still feels fairly weak as real incomes are falling so we would have liked to have seen at least one month without a rate rise.”
Andrew Gething, managing director of MorganAsh: “While it seemed like inflationary pressures were continuing to ease, the news of a surprise jump in inflation last month was clearly enough of an excuse for the Bank of England to make another increase. Without this, the expectation was the MPC would look to hold rates, signalling that this may well be the last for a while.
“This will be of little comfort though to the more than 1.6 million households on either tracker or variable mortgages. Thanks to today’s decision, they will once again see an almost immediate impact on their monthly mortgage payments. That’s on top of a rise in other outgoings, mainly food costs.
“At all levels across financial services, it’s once again a reminder that firms must be alive to challenges facing those vulnerable customers who will be most susceptible to harm. After all, the upcoming Consumer Duty regulation brings with it the obligation to not only identify but monitor the vulnerable characteristics of all customers throughout the lifetime of the product.
“This goes far beyond financial vulnerability to include all potential health, lifestyle and relationship issues. Without the correct data, processes and technology in place, firms cannot mitigate the risk of harm, deliver fair value or ensure good outcomes for customers – key requirements of the regulator. The prospect of a pause in rate rises in the future will not be enough to stop more borrowers potentially falling into the vulnerable category.”
Kimberley Gates, head of corporate partnerships at Sirius Property Finance:
“An eleventh consecutive interest rate hike will come as a blow to the nation’s homebuyers who will now see the cost of securing a mortgage climb that little bit higher at a time when they are already struggling with the wider cost of living.
“The silver lining is that today’s increase is the lowest since August of last year which suggests we could be over the hump. However, we expect that interest rates will continue to rise before they fall, with the general consensus being that they will peak at five percent.”
CEO of Octane Capital, Jonathan Samuels:
“Despite the global banking wobble the message from the Bank of England is clear, they aren’t worried and their sights remain firmly set on bringing down inflation.
“This seems like the right call given that UK inflation is persistently higher than other advanced economies in the EU and the US.
“However, in seeking to reduce inflation through higher rates we can expect downward pressure on house prices to filter through as homeowners see their fixed rates end and they have to take out more expensive mortgages.”
Jason Ferrando, CEO of easyMoney:
“It was hoped that we had seen the end of the Bank of England’s aggressive approach to curbing inflation, but an eleventh consecutive rate increase suggests otherwise.
“With the rate of inflation also rebounding despite predictions that it would continue to fall, the likelihood is that today’s rate increase isn’t the last one we’ll see.
“Of course, while higher interest rates won’t be welcomed by those looking to borrow, the flipside is that those with money to invest stand to see a greater return and this is one positive, at least.”
Managing director of Apex Bridging, Chris Hodgkinson:
“Interest rates are now at their highest since October 2008 and this will understandably have an impact on the purchasing power of the nation’s homebuyers. We’ve already seen house prices cool since September of last year as a result of higher mortgage costs, with buyers no longer borrowing beyond their means in order to climb the ladder.
“However, while they are now treading with greater caution, the increased cost of borrowing certainly hasn’t deterred them and, all things considered, the property market remains in very good shape despite the wider economic picture.”
Co-founder and CEO of Wayhome, Nigel Purves:
“We’ve already seen how increasing interest rates have brought uncertainty to the mortgage sector and it’s the nation’s first-time buyers who have been hit hardest in this respect.
“Not only are they facing the tough task of accumulating a deposit on the ever increasing cost of a home, but the number of higher loan-to-value products has also reduced, while the monthly cost of repaying a mortgage has climbed.
“It’s a bleak outlook, to say the least, and one that will be all the bleaker following today’s decision.”
Paul McGerrigan, CEO at fintech broker Loan.co.uk:
“It now looks like the Bank of England is in the latter stages of its most aggressive policy tightening cycle in three decades, as its 11th consecutive interest rate increase is slightly more palatable at 0.25%.
“It will be a relief to many that the Monetary Policy Committee has responded more gradually than previous increases and commentators’ fears.
“A steadier approach is likely to do less damage to the property market and will slightly reduce the impact on thousands of property owners with variable mortgages and fixed rate mortgages which are coming to an end.
All signs show UK inflation is past its October peak of 11.1%, despite yesterday’s surprise increase, and whilst it’s clear that more policy measures are needed to keep it on the downward trajectory, it seems the MPC is taking a more measured approach.”
Stuart Cheetham, CEO, MPowered Mortgages:
“Whilst conditions have been unpredictable for some time now, recent events, including Silicon Valley Bank and, more recently, Credit Suisse, have dealt considerable shocks to the market.
“Within this context, today’s rise is not altogether a surprise – not least given the rise in inflation reported earlier this week. We are likely to continue to see the base rate rise over the coming months to temper ongoing price rises, but a peak is expected towards the end of H1.
“Given we have seen particular volatility in swap rates over recent weeks, impact on mortgage rates is hard to assess. It is important that consumers continue to seek expert advice when it comes to purchasing a property or remortgaging in order to ensure that the full and current picture can be taken into account when making a decision about their mortgage.”
Brian Murphy, head of lending at Mortgage Advice Bureau:
“Today’s interest rate rise will be another bitter pill to swallow. It will feel like a double whammy of bad news for those on variable rate deals, after the cost-of-living showed no signs of slowing down last month. As for the roughly 400,000, fixed deals due to expire in Q2, there is some good news. Despite today’s rise, the rates on two and five-year fixes continue to fall and have reached a six-month low.
“There is also some light at the end of the tunnel for those on variable rates. It looks like we’re fast approaching the summit of the interest rate hikes, and there are hopes that the cost of borrowing will start to decrease.”
Rob Clifford, chief executive of mortgage and protection network, Stonebridge:
“Once it was revealed this week that inflation had risen to 10.4% in February, followed by the Fed’s decision to raise rates yesterday in the US, it seemed like a racing certainty the MPC would have to act today with a further Bank Base Rate rise. The markets have already been reacting to that news with swap rates increasing, and by this morning that rate rise already seemed priced in.
“Clearly those borrowers on tracker rates will feel this rise immediately, however some lenders have been reducing fixed-rates this week, and my feeling is that the search for business – particularly from the mainstream, high-street lenders – will continue to keep mortgage rates round about where they are.
“This makes it even more attractive and indeed necessary for consumers to seek expert mortgage advice and mortgage advisers come into their own when lending criteria and product pricing are more complicated than usual.
“As we know, the Bank of England has few levers it can pull in terms of trying to bring inflation down, and the stubborn nature of inflation evidenced by this week’s figures, meant this was a decision it probably felt it had no option to make. We already seem like a long way from last week’s OBR forecast for inflation to be 2.9% by the end of the year, and we will need to see some sharp falls in inflation in the months ahead, before there is any thought of Bank Base Rate being cut.”
Nathan Emerson, chief executive for Propertymark:
“With interest rates again rising, we of course expect to see challenges within the market. For some current homeowners, the cost to remortgage will mean finding an extra £200 to £300 a month on average, whereas for many of those entering the property market, they will need to re-imagine their budgets and adjust their affordability.
“Previous increases are returning us back to a more sensible market with supply and demand levels evening out. This in turn has started to soften house prices and we would expect this trend to continue to counteract the unsustainable transaction levels and unachievable house price increases seen previously.”
Scott Gallacher, chartered financial planner at Leicestershire-based independent financial advisers, Rowley Turton:
“While the Bank of England’s decision to raise interest rates to 4.25% may be aimed at controlling inflation, it risks killing UK businesses and hurting consumers. The policy of continually raising rates to control inflation has not worked, as evidenced by the surprise increase in inflation to 10.4%. The Bank of England now needs to consider whether continuing to raise rates is appropriate. While controlling inflation is important, it shouldn’t come at the cost of the UK economy and its people. The Bank of England should adopt a more measured approach that considers the impact on businesses and consumers rather than continuing to rely on the hammer of ever-higher interest rates to try and nail down inflation.”
David Robinson, co-founder and wealth manager at London-based Wildcat Law:
“Where the Fed leads, the Bank of England has to follow. This has been the case for much of this period as a large chunk of our inflation comes from the weakness of Sterling versus the Dollar. The good news is that the Fed appears to have adopted the correct strategy, as overall the US economy is proving to be robust and, with the exception of the obvious waves amongst specialist financial institutions, they look to be riding out the current storm. Looking at the UK’s economic picture, this seems to be replicated. Yes it will bring a lot of pain to regular people but it looks like we may escape this without substantial business failures and significant unemployment.”
Joshua Ellard, Managing Director at London-based Finanze Business:
“Price stability remains the primary macroeconomic objective of both the US and the UK. We have seen the UK housing market cool slightly over previous months as the cost of borrowing has increased. As with the previous 10 base rate increases, those on variable rate or tracker mortgages will imminently face higher monthly mortgage payments. 5-year fixed rates remain lower than 2-year fixed rates, a stark contrast to what we have seen in recent years. We can conclude that lenders are expecting rates to fall in 2024, hence the discrepancy in pricing. The recent slump in housing transactions can be largely attributed to the fourth quarter of 2022. Due to the lag effect of data collection, it is only now that these figures are being observed. The increase has been widely expected by those across the financial services sector. As such, I expect to see little fluctuation resulting from today’s news. We still expect further increases to 4.5%-5% before we see rates start to come down.”
Jamie Minors, Managing Director of Norwich-based estate agent, Minors & Brady:
“Inflation has been too high for too long, therefore the 11th rate increase in a row will come as no shock to many. Since the fourth quarter of 2022, mortgage rates have been steadily reducing, which has helped soften the blow for buyers across the country. We are still seeing strong demand among home movers, however buyers clearly need to factor in the increased cost of mortgages. Providing people are reasonable with their numbers, we are still going to see good volumes of transactions in 2023, despite the base rate increase. Buyers want to buy, sellers want to sell and property experts need to give accurate, honest advice to ensure we can all help things to tick along.”
Mark Grant of Gloucester-based business finance broker, The Business Finance Branch:
“This week’s CPI Inflation data may have nailed this 0.25% interest rate rise to the mast, but businesses can look to the rate-setting committee’s minutes for some confidence and certainty. It says CPI inflation increased unexpectedly in the latest release but it remains likely to fall sharply over the rest of the year. As long as it does start to fall away sharply, then business confidence will return and grow.”
Riz Malik, director of Southend-on-Sea-based R3 Mortgages:
“We need this rate rise as much as Boris needs another party. However, the Bank of England has a mandate to follow and after yesterday’s inflation figures, there was little they could do. The saving grace is that the rise was only 25 basis points. Hopefully, we have reached the peak.”
Gaurav Shukla, mortgage adviser at London-based broker, Home Me:
“After Wednesday’s announcement that inflation had risen to 10.4%, it was inevitable that the base rate would increase today to further reduce inflation quicker. With the spring Budget confirming that the OBR believes inflation will be 2.9% by the end of the year, the government have major work to do for that to be achieved. Increasing the base rate is one thing, but will this really help?”
Andrew Montlake, managing director of the UK-wide mortgage broker, Coreco:
“They say a week is a long time in politics, but a day is an aeon in the financial markets. In the past few days, we have seen the contradictory effects of a banking drama pushing rates down on the one hand, and the surprise rise in inflation pulling in the opposite direction. These opposing forces left the Bank of England with no real choice but to increase rates as expected by 0.25%, with doing nothing not an option and 0.5% going too far. What happens next is speculation, but the Bank of England should now take a proverbial time-out and give both the public and the markets time to breathe and settle. A period of calm is imperative, and rate rises take time to filter through. Central banks tend to go too far and only stop when something breaks. Potentially we are at that point now. This rollercoaster of ups and downs could continue for some time yet.”
Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages:
“Unfortunately, this hike was not unexpected given the increase in inflation and the US rate increase earlier this week. The Monetary Policy Committee is committed to deliver low inflation, which will eventually bring welcome relief to mortgage holders, but in the very short term we will need to tighten our belts again. We will likely see fixed rates creep up over the next few weeks as swap rates factor these rate changes either side of the pond, and tracker rates will obviously increase by 0.25%. Let’s all hope that this is the ‘peak’ of the base rate.”
Wes Wilkes, CEO at Net-Worth Ntwrk:
“The Bank of England has raised rates to 4.25% with a 0.25% rise matching that of the US central bank yesterday. It’s really important that they were steadfast in their trajectory of rate increases on the back of a surprise uptick in inflation. We must remember that whilst this may cause some discomfort to parts of our economy, relative to history we are still in a low rate environment.”
Tim Mottram, financial planner at London-based Grey Parrot Financial Planning:
“Further base rate rises are opening up more options for innovative financial planning solutions. With the current market volatility, many retirees are looking for secure returns to meet their income needs. One option that has opened up recently is purchasing National Savings & Investment products within a Self Invested Personal Pension, something we find many clients are unaware they can do. The current return on an NS&I guaranteed growth bond is 4%, which may well increase to 4.25% after the rate rise today. The return is still well below inflation, but with volatile markets and worry over the banking sector, the option of a guaranteed return and a £1m capital guarantee provided by NS&I will look tempting for some retirees.”
Rohit Kohli, director at Romsey-based mortgage broker, The Mortgage Stop:
“Given the inflation numbers this week, this hike wasn’t surprising. Most lenders seemed to have priced in this increase already over the past few days, however we’ll now watch and see what happens in the markets and in particular the swap rates. This rate hike is likely to slow the housing market recovery, which had picked up in recent weeks but the positive signs are that this could be the peak of the base rate cycle. Confidence is now the watchword. What happens next will be down to how confident the markets are of the plan and then in turn how this confidence will affect lenders’ willingness to lend. If inflation does start to tumble in the coming months then it could line up for interest rate reductions in early 2024 and it would be surprising to see anything before then.”
Jamie Lennox, director at Norwich-based mortgage broker, Dimora Mortgages:
“The hope of the base rate not increasing was quashed as soon as the data landed yesterday around inflation. The positive, though, is that many lenders have already factored this increase into their current rates and so we are unlikely to see any dramatic changes to the pricing of fixed rate mortgages.”
