THE BANK OF ENGLAND has raised interest rates for a record-breaking 13th successive time, lifting the cost of borrowing to 5% and making loans, like mortgages and credit card debt more expensive.
The base interest rate is now at its highest in 15 years. Not since April 2008 has it been at this level.
The bank’s monetary policy committee on Thursday decided to lift the base rate by half a percentage point, an increase that just yesterday morning, before surprise inflation figures were announced, was seen as unlikely.
But the persistently high inflation rate and rising core inflation – which measures price increases without volatile energy and food – have put pressure on the bank to further increase rates to dampen economic inactivity in an effort to bring down price rises.
After yesterday’s inflation announcement, it was seen as a near 50-50 chance of the bank opting for a half or quarter percentage point increase.
Speaking to Herald.Wales earlier, Alexandra Loydon, Director of Partner Engagement and Consultancy at St. James’s Place commented on the Bank of England’s interest rate hike to 5%.
“This is now the 13th consecutive rise in interest rates and the highest rate, at 5% since the financial crisis in 2008. It is part of the Bank of England’s repeated attempt to control rising inflation, without any certainty that it’s reached a peak, meaning that we see further rate rises are now being factored in. With the OECD already suggesting that the UK will have one of the highest inflation rates for an advanced economy, and with the Bank of England nowhere near its official target of 2%, it’s unlikely it can afford not to look at continuing to raise rates this year.”
“It is mortgage borrowers, particularly those on tracker, standard variable rates (SVR) or variable rates, who are really feeling the direct pain of the continual Bank Rate rises. Borrowing may become more expensive for everyone but those on variable rates will be impacted immediately, so information on the extent of the rise and the affordability of the mortgages is essential. Those nearing the end of a fixed term deal should shop around to secure the best rates they can, but if mortgage holders foresee that costs may be unaffordable, they should engage sooner rather than later with their provider.”
“In fact, placing continual pressure on consumer and commercial borrowers may put the economy into recession without providing sufficient relief to the cost-of-living crisis. For those struggling with the cost-of-living, the best advice is to understand the impact on outgoings, costs and monthly financial commitments and plan how to tackle them as best you can.”
“Having sustained higher interest rates should encourage saving rather than spending, but it’s proving a challenge, both to curb spending and for companies to resist higher than inflation pay rises. Savers should look across the market to the highest savings rates, as we know that savings providers don’t always pass on the increase or, if they do, they are slow to do so. The key is to shop around and be prepared to lock up your money for longer, if that’s an option to secure a higher rate.”
