Bank of England raises interest rate to 5%

The Bank of England (BoE) has announced an increase in interest rates by 0.50%, taking the rate from 4.5% to 5%.

This hike took the base rate to its highest level since the financial crash of 2008.

The decision, made by the BoE’s Monetary Policy Committee (MPC) in a majority vote of 7-2, reflected its ongoing efforts to curb stubbornly high inflation.

Two members preferred to maintain the bank rate at 4.5%.

It marked the 13th consecutive increase since December 2021, demonstrating the central bank’s aggressive stance in curbing soaring inflation, which peaked at a 40-year high of 11.1% in October last year.

According to figures released yesterday by the Office for National Statistics (ONS), inflation remained at 8.7% for the month of May – unchanged from April.

While inflation may be on a slow decline, it is still far from the central bank’s target of 2%, with post-Covid recovery in the UK lagging significantly behind the US and Europe.

Mark Bogard, CEO the Family Building Society, said: “Politicians and economists often say we shouldn’t take one month’s figures in isolation…be brave and do nothing.

“The interest rate rises we have already had have not yet worked through.

“Too slow, then too quick and then too high is not a good way to act. It’s bonkers.”

Kieran Jones, head of policy and communications at the National Association of Commercial Finance Brokers (NACFB), said: “Before yesterday’s inflation numbers, a 25 basis point rise to 4.75% was looking likely.

“However, mounting evidence illustrating that underlying inflationary pressures are withstanding prior rate increases is raising the chance of a bigger, 50 basis point increase.

“The NACFB will be closely monitoring the impact such a significant rise will have on both lending and borrowing appetites.” 

Further reaction:

Ben Allkins, head of mortgages and protection at Just Mortgages:

“Many would have hoped that the MPC would follow the Federal Reserve – as it often does – and pause its rate rising agenda.

“But while the Federal Reserve pauses to assess the impact of existing increases, the same cannot be said for the Bank of England with stubborn inflation clearly proving too much of a threat to not raise base rate once again.

“As swap rates respond to market expectations and lenders reassess their products, the role of brokers remains paramount to provide quality advice in a changing landscape.

“While we’d prefer to see base rate falling – like many – there’s no question a base rate change still serves as a reminder to consumers to seek advice and lock in a deal before it changes once again. That’s especially true for the wealth of remortgage business still up for grabs.

“There’s no question the market will continue to present challenges and our message to our brokers has been clear.

“Now is the time to take advantage of the opportunities available to not only train up and become the best broker you can be, but expand your skill set to boost your earning potential.

“Business protection is key example of an under-served market with huge upside and real relevance in the current climate.”

Kay Westgarth, director of sales at Standard Life Home Finance:

Today’s interest rate rise may not have been unexpected, but it was certainly unwelcome with thousands of people who are heading towards the end of their fixed rate deals or trapped on their lenders standard variable rate particularly impacted.

“Older homeowners who may have repaid their mortgages or taken out an equity release plan which boasts rates which are fixed for life are less likely to be feeling this pressure. 

“However, they will no doubt notice the impact on loved ones and the ‘bank of mum and dad’ will become an even more important lending institution – albeit with far better rates than you see on the high street.

“That said, it is vitally important that older people balance their desire to help their families and the need to maintain their own standard of living in retirement.  

“Our own research identified that the majority of families (88%) are supportive when their older relatives consider equity release as they wanted them to do the right thing for their individual circumstances.

“With the support of a specialist financial adviser, older homeowners can use equity release to achieve both objectives in a way that is sustainable for both the long and short term.”

Nitesh Patel, strategic economist at Yorkshire Building Society:

“No one will be surprised the Monetary Policy Committee members voted to raise the Bank Rate, no doubt cemented following yesterday’s disappointing stagnant inflation data.

“It’s now a question of just how high the Bank will go to get inflation under control, especially considering core inflation – which doesn’t include food and fuel prices – is still on the up.

“Though households already feel stretched, the reality is the bulk of the rate increases are yet to be felt. This thirteenth base rate rise could not come at a worse time for nearly a million homeowners looking to remortgage in the next six months on to higher mortgage interest rates.

“While this will limit spending power, the number of first-time buyers extending their mortgage term beyond 30 years has risen by around 13% since March last year.

“With the majority no doubt forced to do this to keep monthly payments affordable, it makes things difficult for the Bank to manage.”

Sarah Pennells, consumer finance expert at Royal London:

“There seems to be no reprieve in sight for hard pressed mortgage holders following this latest increase to the Bank of England base rate.

“Although the vast majority of mortgage holders are still on a fixed rate deal, homeowners whose deal is nearing its end face a jump in payments which, for some, may be unaffordable.

“While those on a tracker rate have seen their rates rise since December 2021, the financial shock will be more dramatic for those on fixed deals who need to remortgage.

“With rates at historic lows on 2-year fixes almost two years ago, borrowers who are about to move off these deals will be seeing much higher monthly mortgage payments.

“When considering the difference between a monthly repayment on a 25-year term mortgage with an average outstanding balance of £127,420, the average rate of a 2-year fixed rate in June 2021 compared with the average today, the difference in a monthly repayment is an additional £250 per month, or £6,000 over the 2-year term.

“This is especially concerning when considering Royal London’s cost-of-living research conducted earlier this year found that 30% of UK consumers were already moving into their overdraft or needing to borrow funds before the end of the month to make ends meet.

“Even though the average fixed rate mortgage deals on the market may be much higher than the one you have, moving on to a lender’s standard variable rate (SVR) will typically be higher still.

“It is usually a lender’s most expensive mortgage option. Currently the average SVR is quoted as around 7.37%, but that will likely change in light of the latest rate rise.

“Although savings rates have been improving, they have not been matching the rises in the Bank of England base rate.

“It is still worth shopping around to see if you can get an account paying a higher rate of interest. Banks and building societies attract new customers by offering their best rates, so it could be worth moving your savings to an account where it would earn more interest.”

Simon Webb, managing director of capital markets and finance at LiveMore:

“The Bank of England’s Monetary Policy Committee has been spooked by the unexpected inflation figures yesterday showing stalemate in consumer price inflation and a rise in core inflation.

“We are still waiting for the previous base rate rises to filter through to the inflation figures but the impact is slow and laborious.

“During the 13 years of low interest rates we had become used to, the Bank said that when rates do rise it will be a slow process, but the opposite has happened.

“The unprecedented 13th consecutive rise in the base rate in 18 months, with further rises anticipated, is a price Chancellor Jeremy Hunt is willing to pay as bringing down inflation is the Government’s ultimate goal.

“This latest rise is likely to be reflected in swap rates, which have almost doubled in the past year and therefore fixed rate mortgages will continue to be more expensive.”

Jonathan Samuels, CEO of Octane Capital:

“As of yet, the Bank of England’s attempts to curb inflation haven’t quite gone to plan and so today’s increase was to be expected. 

“While a half a percent jump may seem substantial, it should help the Bank of England regain a grip over the situation at hand, as currently, it trails the Federal Reserve and needs to catch up if we want to see inflation fall like it has in the United States. 

“So all things considered, today’s increase is probably appropriate, although this isn’t the news the nation’s borrowers were hoping for.”

Chris Hodgkinson, managing director of House Buyer Bureau:

“So far the UK property market has weathered the storm of 12 consecutive interest rate hikes and while we’ve seen marginal signs of house price depreciation, there’s nothing to suggest a thirteenth increase will bring the walls crashing down around us. 

“It’s also important to note that a third of homebuyers now own their house outright and so they aren’t feeling the strain of increased borrowing costs. 

“That said, any base rate increase is sure to be passed on by lenders to the nation’s homebuyers and this is likely to mean higher borrowing costs and fewer available mortgage products.

“This will inevitably have an impact on buyer purchasing power and, as a result, we can expect to see more protracted transaction timelines and a further cooling in property values as the market continues to find its feet.”

Nicholas Christofi, managing director of Sirius Property Finance:

“Interest rates are now at their highest in over 15 years, but it’s not just the higher cost of borrowing that will be weighing on the minds of UK homebuyers, it’s the consistency at which rates are climbing. 

“Many buyers are finding that, having agreed a mortgage in principle, the goal posts have already moved by the time they find their ideal home and they’re having to return to the drawing board to reassess just what they can afford to borrow.”

James Forrester, managing director of Barrows and Forrester:

“It certainly seems as though the Bank of England has lost its grip on inflation and so they’ve continued to pile more misery onto borrowers with yet another rate increase. 

“This will do nothing to revitalise what has become a rather weary looking property market in recent months and is sure to dampen buyer demand as lenders pass on this increase in the form of higher mortgage rates.”

Marc von Grundherr, director of Benham and Reeves:

“The market remains in fairly good form considering interest rates are at their highest since 2008 and we expect this will now bring about a reversal in market fortunes. 

“The more inflated areas of the market, such as London, largely trailed their more affordable counterparts where pandemic house price growth is concerned.

“However, buyers in these regions are better placed to absorb higher borrowing costs and so we expect the likes of the London market to remain largely unfazed going forward.

“As a result, we expect stronger market performances to materialise compared to some of the other more affordable areas of the market.”

David Hollingworth, associate director at L&C Mortgages: 

“The increase in base rate today is hoped to be the medicine that will help treat the high inflation that has already caused fixed rates to shoot up. 

“Higher rates will of course not leave a pleasant taste for borrowers that will see a further rise in their payments. 

“We saw many borrowers take a tracker in the wake of the mini-Budget as a holding position.  Those that haven’t already jumped ship to a fix may be reviewing as the rate outlook has shifted substantially. 

“Rather than being near to the peak, today’s increase may not be the last in the face of stubborn inflation.

“Those already in a fixed rate will be looking ahead at what has become a more uncertain rate environment when their deal ends. 

“Many will be looking to get a deal in place well ahead of the end of their fixed rate, so they have an option in hand. 

“Given the speed of change in rates there’s little time for decisions and borrowers will need to move fast as rates continue to come and go with little notice.”

Adam Oldfield, chief revenue officer at Phoebus Software:

“Whether today’s base rate increase will immediately affect mortgage rates is unlikely after recent increases following the surge in swap rates. 

“However, borrowers seeing the headline today will be fearing that another hike is inevitable.  

“With 2-year fixes standing around six per cent the decision for those coming off fixed rates will be a difficult one. 

“Do you fix at six or drift onto an SVR in the hope that at some point in the next two years rates come down? Not an easy decision, especially if as many believe the Bank hasn’t yet finished putting rates up. 

“The fact that we have been living in an artificially low interest environment for so long means that, perhaps, some borrowers became complacent.

“Now the increase to their mortgage payments has come as a massive shock. 

“Nonetheless, paying the mortgage is not optional and as such borrowers are going to need to adjust to this new environment, the new normal. 

“Unfortunately, there will be some that simply can’t manage, for whatever reason. 

“We are already seeing the rate at which arrears are rising increase and lenders are going to need to be prepared.

“It will be very interesting to see what comes out of the Chancellor’s summit tomorrow. Will there be increased pressure from the Government for lender leniency?”

Adam Ruddle, chief investment officer at LV=:

“The Bank of England’s decision to raise interest rates by half a percentage point is a clear sign that the inflation beast is going to be harder to tame in the UK.

“The market was expecting a quarter point rise given the Bank’s forward guidance but clearly a larger increase is warranted given the stubborn inflation data – particularly core inflation which has reached a 20 year high. 

“A larger than expected increase now should give the Bank some flexibility in the months to come.

“The danger (and increasingly the intention) is that a such a large increase in interest rates will hurt the UK economy, increase mortgage payments and squeeze living standards further.

“Continuing to increase interest rates is a clear signal that a recession is required to vanquish inflation.

“I believe the Bank is more likely to revert to smaller quarter point hikes over the next few months.

“At this point, the data does not suggest there will be any rate cuts over the next 18 months which leaves the UK as an outlier compared to the US and Europe where rate cuts are expected as their inflation is more under control.”

Ben Waugh, managing director at more2life:

“The Bank of England’s decision to increase interest rates to 5% was no doubt a hard one and based on the need to control runaway inflation but this will come as cold comfort to many older borrowers – especially those coming off fixed-rate deals and reverting to their lender’s standard variable rate. 

“Affordability will remain a key issue and a lot of borrowers will be forced to reassess their options as they see repayments increase sharply. 

“Even those even those over-55s who are lucky enough to have paid off their mortgage are likely to be finding balancing their finances tricky as while headline inflation is high at 8.7%, inflation on food is more than double that at 18.3%.

“There is no quick fix but advisers in the later life lending market are ideally placed to support people who are trying to find the right option for their individual circumstances. 

“With equity release plans offering the opportunity to make ongoing interest as well as lump sum repayments, interest-rates fixed for the life of the loan and some products allowing people to remortgage penalty free after four years, there are a lot of positives to speak to customers about.“  

Andrew Gething, managing director of MorganAsh:

“With every recent MPC decision came much talk of rates reaching the peak. However, today’s decision in light of sustained inflation, shows that peak may now be some way off yet.

“Mortgage pressures are claiming many of the headlines at the moment as swap rates react to market expectations and lenders reprice accordingly.

“With Consumer Duty just weeks away now, financial vulnerability will be key, especially for those on tracker or variable-rate mortgages and those looking to remortgage with higher rate, higher price fixed-rate products.

“But it shouldn’t be the only focus as Consumer Duty expands the scope of vulnerability firms must consider, monitor and evidence.

“Being alive to the challenges facing vulnerable customers means considering health, lifestyle and relationship challenges such as divorce, domestic abuse and so many others. Without a consistent way to monitor, it will be much harder for firms to meet the new rules.

“As more consumers potentially fall into the vulnerable category with base rate rises, inflationary pressures and lifestyle changes, there’s no room for complacency when it comes to meeting the requirements of Consumer Duty.

“While looking after vulnerable customers has long been a priority for many, the expectation is now far greater.”

Mark Tosetti, group partnerships director of ONP Group:

“Yesterday’s inflation figures will have certainly meant a sleepless night for the Bank of England’s MPC. And this morning’s decision has ended hopes that we could follow the lead of the Federal Reserve and pause interest rates.

“Although we were optimistic that the twelfth increase would signal the end, there is still a prevailing belief in the market that interest rates will decrease in the second half of the year. We can only hope that this will be the thirteenth and final rise.

“We need to see a level of certainty for the cost of borrowing and stability for swap rates. This would then lead to an increased availability of products that better meet the needs of consumers.

“We are already starting to see increased demand in the remortgage market in the second half of the year.

“If competitively priced products become available, consumers might be less inclined to remain on standard variable rates.”

Will Rice, CEO of residential mortgage lender, Generation Home:

“The immediate impact of this hike will be to lenders’ standard variable rates, which react most often in proportion with the base rate increase.

“Lenders may boast that they’re not passing the entire increase along to their SVR customers, but unless they are passing along the benefit of those high interest rates to their savings customers, it’s all just lip service.

“Another SVR increase could put some households in serious financial difficulty. The other immediate impact will be changes to lenders’ affordability calculations.

“Following a base rate hike, lenders might choose to offer less to mortgage applicants.

“Aspiring buyers who could afford their dream home on Wednesday may not be able to on Thursday. The right kind of mortgage support could lessen the burden of this extremely difficult landscape on homeowners.

“But any solutions need to support renters, too, who are also facing extremely high monthly payments and even less security than homeowners.”

Hamish Anderson, CEO at Money Mover: 

“My heart sank for the small businesses of the UK when I heard the announcement from the Monetary Policy Committee at midday today.

“While we expected another rise, it’s becoming clear that the Bank of England can no more hold back inflation than King Canute could control the tides.

“To continue to increase base rates robotically seems like a futile act bordering on self-harm. The traditional economic rules are clear.

“You counter inflation by raising interest rates. This raises the cost of money, reduces consumer spending power and encourages suppliers to lower the cost of their products.

“However, it is a blunt instrument and the Bank is overlooking unique factors that mean the traditional rules do not apply.

“The drivers of inflation (the war in Ukraine, the impact of Brexit and Covid) are beyond the reach of the tools it has at its disposal.

“Raising interest rates in the UK will not cut the cost of fossil fuels or reduce the cost of trading with Europe.”

Kevin Dunn, mortgage and protection adviser at Furnley House: 

“The mortgage fixed rate markets seem to have already priced this in, so I would not expect any further great changes beyond what we have seen over the last month.

“Although clearly not welcome for mortgage holders, I believe this was the correct call, as the previous rate changes have had little effect on curbing inflation.

“The definition of insanity is do the same thing and expect a different outcome. Hopefully this means those in charge may be sane after all.”

Mark Grant of The Business Finance Branch: 

“This further increase of 0.5% in the Bank of England base rate to 5% is another serious body blow to UK businesses.

“It will get passed on in full and immediately to commercial borrowers.

“Non-bank lenders will see their own funding costs increase, so the end business borrower will see their cost of borrowing increase more than 0.5%.

“We see many clients using business finance to afford the upfront costs of taking on new work and opportunities.

“This rate increase will stifle productivity, growth and business confidence, in turn affecting GDP in the wider economy.”

John Lamerton, business author and lifestyle business owner at Big Idea Ventures: 

“The Bank of England seems determined to push us into recession.

“Small business owners have already had to survive Covid lockdowns, inflation-busting outgoings in the form of suppliers and staff, and a cost-of-living crisis causing customers to drastically reduce spending.

“This latest rate rise could well be the final nail in the coffin for many small business owners.”

Kundan Bhaduri, director of The Kushman Group:

“This latest hike, without a doubt, could slow down the property market as potential buyers scuttle away.

“As for savers, they get to do a victory dance. Higher interest rates could mean a little extra cha-ching in their savings accounts.

“It’s like finding a forgotten twenty-pound note in the back pocket of your jeans.

“Sadly, the value of those extra returns will be overshadowed by inflation.

“It’s like winning a dance competition, only to realize you spent more on sequined costumes than the prize money itself.

“Investors and the markets are left doing a jittery jive. The rate hike introduces a dose of uncertainty, leaving property investors to ponder whether to tango or tiptoe out of the market.”

Michelle Lawson, director at Lawson Financial:

“This rise to 5% is not a surprise given the speculation following the inflation announcement yesterday.

“Not great for borrowers with tracker rates, and businesses with tracker-linked commercial finance who will all see rises to their outgoings and costs when things are already increasing.

“Hopefully this rise will be passed on for those with savings too.

“The next decision is due 3rd August. If inflation and CPI remains unchanged between now and then we could see this rising further.

“Clearly what is being done isn’t working so at what point does this stop and do the Bank of England and Government think of a change of tack?”

Ashley Thomas, director of Magni Finance:

“Not surprisingly, the Monetary Policy Committee have significantly increased the base rate. You would hope this would get inflation under control quicker.

“This will have an impact on people who are on tracker rates and those looking to remortgage in the next six months.”

Joe Garner of residential and commercial property consultants, Joe Garner Consulting:

“It seems the Bank’s attempt to bring inflation down has taken a hilariously futile turn.

“It’s as if they’re playing a game of whack-a-mole, but instead of moles, it’s prices that keep popping up everywhere.

“They swing their mallets with all their might, but each strike only seems to send prices soaring higher. It’s like they’re using a feather duster to fight a hurricane.

“Maybe they should try a different approach, like hiring a team of clowns armed with water guns to cool down the overheated economy.

“It’s a comedy of errors that leaves us wondering if the Government and Bank of England are secretly moonlighting as a stand-up comedy troupe, because their attempts at tackling inflation are nothing short of a hilarious pun.”

Gary Bush, financial adviser at 

“The inflation figure is to blame for the 0.5% increase in the Bank of England base rate today, well that and the Bank being too cautious back in December 2021 when the increases should have been whole numbers like 1%-2% to truly hit the early signs of inflation.

“The London and South East property markets will slow to a grinding halt now I think.

“Any growth will be in the areas of the UK that still have cost-effective properties of small portions to incomes (North East/North West).

“Savers will “eventually” benefit from this 0.5% hike.”

Ellie Sawkins, investment analyst at Wealth Club:

“The Bank has moved onto the front foot this month, raising the base rate by 0.5%.

“While an increase in rates was all but guaranteed following this week’s sticky inflation figures, sentiment was divided over how high the Bank could go.

“Too small an increase and the Bank risks being labelled ineffective but too large and it could drive the economy into recession.

“By a wide margin, the MPC voted for the latter, although opinion was split with two members voting for a hold.

“Headline inflation was a key driver behind today’s decision, having defied expectations to hold steady at 8.7%.

“At the same time, core inflation, which strips out more volatile energy and food prices, has continued its march higher, rising at its fastest rate since 1992.

“Looking for the positives, real GDP increased in Q1 2023, marginally ahead of expectations and the Bank continues to forecast inflation falling significantly during the course of the year, with food prices in particular, expected to calm.

“However, in what has objectively been a difficult week for the Bank, it has continued its tightrope walk between stubborn inflation and an increasingly fragile economy, albeit with small steps.

“But one wrong move and the consequences could be painful. Whilst a 0.5% rise will be grim reading for mortgage holders, spare a thought for those in Turkey, where the central bank has just raised interest rates by 6.5% to 15%!”

Rob Clifford, chief executive of Stonebridge:

“It is a case of déjà vu with today’s decision to increase Bank Base Rate by 50 bps.

“As soon as yesterday’s inflation figures revealed the same overall figure as last month and an increase once again in core inflation, this MPC decision was nailed on.

“The big question however is whether this is an example of the definition of insanity – doing the same thing over and over again and expecting a different result.

“Multiple rate increases over the last year have barely moved the dial on inflation, and what we have is a decision which will only add to the monthly mortgage payment burden for many borrowers, at a time when the cost-of-living remains extremely high.

“One senses that both the Government and the Bank have painted themselves into a corner from which they have few options to extricate themselves.

“The reality is that high inflation is likely to be with us for many months to come, and if the Bank feels it only has one option at its disposal – even if it isn’t working – then the likelihood is that this will not be the last rate rise of the year.

“We expect a rise in August and possibly September too. Consumers now need mortgage advice more than ever before.”