Fed rate hike could light a rocket under BoE

The Federal Reserve raised interest rates to a range of 5.25% to 5.5% yesterday, despite the fact inflation in the US was just 3% in June.

With August’s Monetary Policy Committee meeting just around the corner, this decision could spell trouble for the Bank of England’s base rate decision.

In light of this, brokers have shared their predictions on what to expect come the 3rd of August.


Jamie Lennox, director at Dimora Mortgages:

“The fact the Fed are still hiking when inflation is at 3% in the US will create fireworks at the next MPC meeting and could light a rocket under the UK base rate.

“It comes as a stark reminder that, despite the latest inflation data, we are still a long way from being out of the woods.

“The odds of a base rate hike of 0.5% in early August have now surely increased. Jerome Powell may just have dealt UK borrowers a serious blow to the solar plexus.”

Lewis Shaw, founder and mortgage expert at Shaw Financial Services:

“Even this relatively minor policy sneeze from the US could translate into a severe cold for UK house prices, which are already heading south at a rate of knots and will have homeowners reaching for the metaphorical Benylin.

“Unfortunately, because the Bank of England was so far behind the curve when the inflationary spiral started, their hand is now forced, which inevitably means more pain for the UK economy.

“It was odds-on that the Bank of England would increase the base rate in August because UK inflation is still almost four times higher than the 2% target.

“But the Fed increasing its headline rate has closed the door to anyone thinking we would avoid a further hike.

“So, it’s likely they’ll follow suit with another 0.25% increase. Fingers crossed, this won’t cause additional spikes in fixed-rate mortgages, although those on standard variable or tracker rates will not be so lucky.”

Wes Wilkes, CEO at Net-Worth NTWRK:

“As many had priced in this rise, the focus was more on what was said, which sadly proved to be not much at all. The Fed was laconic at best, simply saying it will go from meeting to meeting.

“Back across the pond, the Bank of England must focus on our own challenges, as UK inflation is sitting at well over double that of the US and four times the 2% target.

“With markets pricing a terminal rate of 5.8%, we should now expect more rises, certainly in August and likely beyond that.”

Craig Fish, director at Lodestone Mortgages & Protection:

“This is a stark wake up call for anyone thinking that the MPC wouldn’t increase base rate further. The US are only 1% away from their inflation target yet still feel the need to increase rates.

“It’s now likely that we will see at least the same, if not a 0.5% increase.

“Hopefully this won’t upset swap rates and lead to more mortgage rate increases, as we’ve seen positive signs this week.

“If you’re on variable rate mortgage you may want to seek the shelter of a fixed rate mortgage for now, thanks to the storms that are blowing across from the Atlantic.”

Justin Moy, managing director at EHF Mortgages:

“This was a surprise from the Fed yesterday and shows that even with much lower inflation there is still space for rate increases.

“This will definitely turn some heads at the Bank of England, in readiness for the next MPC meeting in early August, and again we all hang on how the Swap markets will react this morning.

“With a few days of small rate reductions, it’s important to remember how quickly the mood can change, and potentially deliver a blow to mortgage borrowers.”

Stephen Perkins, managing director at Yellow Brick Mortgages:

“Should the Bank of England raise the base rate on 3rd August? No, but will they?

“Almost certainly, especially now that the US Federal Reserve have raised theirs whilst in a better economic position.

“The Bank of England will just keep beating the same drum and hoping for a different tune.”

Bob Singh, founder at Chess Mortgages:

“The Fed raising rates by 0.25% was expected because in this market central banks can’t afford to take any chances.

“This exerts pressure on the Bank of England to keep the “pedal to the metal” and drive down inflation in H2.

“Three successive hikes of 0.25% look likely to steer inflation to more acceptable levels.

“In the short term, rates will remain high but longer-term rates should hopefully start to ease. 2024 is likely to be a better year for the property market.”

Graham Cox, founder at SelfEmployedMortgageHub.com:

“The US Dollar has fallen against other currencies, including Sterling, in recent weeks, which makes imports more expensive and is therefore inflationary.

“So, the Fed increasing the base rate by 0.25% may be an attempt to protect the currency from further weakness.

“I don’t know that this changes the Bank of England’s outlook significantly.

“Chances are they’ll raise interest rates again in August, though I suspect they have already raised them further than they need to.

“Having been slow to act in 2021 when inflation first raised its ugly head, they’re now overcompensating.”

Chris Barry, director at Thomas Legal:

“The Fed raised interest rates by 25bps to a 22 year high and the ECB are set to do the same. Both, however, are indicating this is likely to be the last.

“The Bank of England meet next on 3rd Aug so 0.25% hike is to be expected, followed by a summer of calm to regroup and take a view based on the next inflation data.

“Inflation pretty much rose month on month throughout 2021 and 2022, but in 2023, inflation has fallen every month, albeit slowly and from a dizzy height.

“If this trend continues, it won’t be long before Threadneedle Street views the trend as heading towards possible deflation and reduces interest rates accordingly.”