Base Rate rises again in bid to curb inflation

The Bank of England has today announced a second consecutive increase in its Base Rate of interest, following the monthly meeting of its Monetary Policy Committee.

The MPC members voted to increase Base Rate from 0.25% to 0.5%, following the increase from it’s historic low of 0.1% just last month. In an obvious bid to ward off inflation spiralling out of control, four of the nine members of the Monetary Policy Committee pushed for an increase to 0.75%, to ward off longer term price rise fears.

Post COVID economy faces inflation and stagnant growth

In announcing todays rise, the Bank also acknowledged that the Omicron variant of COVID-19 is expected to hit growth this year, with the economy forecast to stagnate throughout the first quarter, and annual growth projections cut from 5% to 3.75%.

“Today has already been called ‘Black Thursday’ in some quarters, with rate increases, reduced projections for 2022 and the energy price cap increasing” said Andy McBride, director at Cleerly. “In isolation both the Base Rate increase and the energy cap rise could see homeowners pay an additional £700 per year each, based on average usage in an average mortgaged property. While it certainly is not a good day for news, there is method to the madness. In raising rates today alongside the real cost of living going up, the Bank is trying to ensure that this ‘shock’ is a one-off rather than inflation increases becoming ingrained in the British economy.”

Today’s news comes as a clear indicator that the Bank are trying to put the brakes on what has been a runaway housing market, with prices booming since the pandemic. With increasing mortgage costs, higher taxes and higher fuel bills, consumer finances will undoubtedly be squeezed and confidence in the market dampened.

“The rise in interest rates could put the brakes on the house price boom we’ve seen in the past 18 months” says Iain McKenzie, chief executive of The Guild of Property Professionals. “Prospective buyers will have to balance their finances more carefully if costs rise and price growth doesn’t cool as quickly as expected. Many of these owners, however, will be keeping a close eye on rates because these fixed-term deals will need renewing eventually. Around 1.5 million fixed-rate deals are expected to end this year and next.”

Take advantage of fixed-rate mortgages for Contractors

While todays news has not come as a surprise, there is a warning that many Contractors could now be regretting not locking in to a fixed rate before now, with many having already missed the boat on record low rates.

“It is definitely not a surprise that rates have increased again” continues McBride. “While it is unlikely that too many mortgage borrowers will be impacted overnight, with many having already sought out fixed rates, the gap between what is now on offer and current variable rates is becoming wider by the day. Thankfully, there is a small period in which you can take advantage of what is still a remarkably good value mortgage market. Generally there is a small crossover period when rates rise before the pricing of fixed mortgage rates are impacted, although clearly for those borrowers currently on variable rates, timing is even more important to prevent further financial woe.”

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