Bank of England raises base rate to 4.5%

As expected, the Bank of England opted to increase rates to 4.5%, citing persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. However, this comes as no surprise as the MPC is infamous for looking at backwards-looking data. Forward-looking data indicates that the heavily-weighted food and energy indices should start falling soon. What's more, British firms have started to cut hiring permanent staff, according to the latest REC survey, and the higher availability of staff for a second consecutive month should ease wage pressures. Nonetheless, the good news is that the MPC has upgraded their outlook for GDP in Q2 to flat, from an initial forecast of -0.4%. That said, the central bank may risk undermining the upbeat forecast if it continues to hike without caution.

This was not an unexpected rise, but is certainly an unwelcome one for many homeowners as well as first-time buyers. The Bank of England is also signalling inflation will fall more slowly than expected, so it's possible we could see one or two more base rate increases in the coming months. The base rate could hit 5%. Would-be buyers should be wary of overpaying as I think house prices will fall 15% over the next year or two. They're simply too expensive right now.

We deal with customers in the UK each day who are facing the cost of living crisis, and this latest increase will pile even more pressure on them. They have soaring food and energy bills already and now borrowing costs have gone up yet again. This latest interest hike will ripple through the economy quickly and the impact could be extreme.

This is a recipe for disaster. Was this the right decision? Absolutely not. The latest hike will inflict more pain and misery on borrowers up and down the country. Inflation is expected to dip in the coming months and wholesale energy prices have fallen. This will push more people into debt and poverty. Borrowers who are on a tracker or variable rate will see their repayments increase immediately.

Managing inflation is important for borrowers with variable rates. Lockdowns decreased shorter-term debts, but high servicing costs can harm small businesses and real estate ventures. The housing market has stabilised and existing debts should be manageable, but capital markets are watching for signs of a potential pause in rate hikes.

An increase in base rates is the last thing that businesses need. This feels more like a political stunt ahead of an election rather than a genuine effort to improve the economy. Inflation will naturally fall as the supply chain continues to open up. I think the government will wait for inflation to fall and then will take credit for this. They will then look to drop interest rates and taxation for a feel-good factor ahead of a general election.

In our opinion, the Bank of England increase should have been a more harsh .50% to attempt to smash the inflation rate hold that is over the UK. We are also wondering if the Bank of England shouldn't look to alter their meeting calendar, as a special measure, to have them fall behind the latest inflationary data - they would then be able to take a more poignant response rather than acting in advance of this data. I don't think this will affect borrowers or property transactions as UK lenders have been factoring in this level of increase for the past 10 days or so. Obviously, this can fall as better news for savers as long as they are investing with an institution that passes down any bank base rate increases in a timely manner. I note that the sterling to Euro and Dollar have nudged in the right direction of late.

Look past the 0.25% rise in interest rates (well telegraphed in advance) to BoE Governor Andrew Bailey's comments that they will be "guided by the evidence" and will not give a "directional steer" on interest rates, and "we will have to act" on signs of persistent inflation. This will concern business owners and point to reaction and not proactivity. We are working with businesses to help them get ahead of their overheads and costs where possible to manage their cash flow - proactive businesses we see fairing better than reactionary ones.

This was expected, and I think the fact 5 of 7 voted for the increase suggests it might not be the last we see of these rises in the next few months.

Borrowers coming off fixed-rate deals or currently on variable-rate mortgages, will see increases pretty immediately. I would urge those clients and anyone with deals ending in the next 6 months to review their mortgage deals.

I think this will have little impact on the markets as it has already been priced in, however, the fact things are happening as expected should give us a sense of stability.

Lending rates are still historically seemingly good value, and with there being no shortage in terms of demand for properties, I can't see it having any real effect on property prices.