The Bank of England has today raised its Base Rate of interest to 0.25%, despite fears of the economic effects of the Omicron variant and potential further restrictions.
The Bank’s Monetary Policy Committee was under pressure to act in the fact of inflation at a ten-year high, and with a budgeted increase scheduled for February 2022, many thought the Bank may wait to see what the new wave of COVID-19 brings
The MPC voted 8-to-1 in favour of the increase, with only Silvana Tenreyro voting against an increase, arguing that “the significant uncertainty introduced by Omicron warranted waiting until February for more clarity before considering any change”, according to the minutes of todays meeting.
The increase means an immediate increase in mortgage payments for those on Base Rate trackers, with fixed rates also likely to increase as a knock on effect over the coming weeks, as Banks look to balance the books.
Arguing against Tenreyro, the MPC suggested that the pandemic appears to have had less impact on economic growth than feared, although concerns were heightened around the impact of new waves.
“Consumer price inflation in advanced economies has risen by more than expected” said the MPC. “The Omicron variant poses downside risks to activity in early 2022, although the balance of its effects on demand and supply, and hence on medium-term global inflationary pressures, is unclear.”
“It was always a case of ‘when’ and not ‘if’ the Base Rate began to creep back up” said Andy McBride, director of Cleerly. “It has long been established that an increase in Feb 22 had been budgeted into Bank of England forecasting, however the MPC have decided to go early with the rise, possibly to curb inflation in light of an expected boom in spending over the coming weeks.”
“It is bad news for the many borrowers still on tracker mortgages, however, with their monthly payments likely to rise on average by around £10 per month.”
The writing was on the wall for hopes of a post-Christmas increase when it was revealed recently that the cost of living had increased by 5.1% in the 12 months up to November 2021, it’s highest level in a decade.
“With the cost of living on the rise, increased mortgage payments are the last thing you need” continues McBride. “It is not all bad news, however, as there are still some incredible deals on offer in the mortgage market. In light of today’s news, however, they are unlikely to remain for long.”
“Now is the time to look at your options, and enjoy Christmas safe in the knowledge that further increases are not on the horizon for 2022.”
