Bank of England rate decision live feed

It’s no surprise that rates have risen again today. The Bank would be seen to be doing nothing to battle inflation of they didn’t but by doing so it makes people think all the more about their spending decisions, worry about the rising cost of debt in every area from mortgages to credit cards. For these people the worst is far from over. Rising debt costs, rising energy costs are undoubtedly here to stay for the short term.

Let's make the cost of living crisis worse by increasing the cost of homeownership when inflation is being driven by wider issues such as Brexit (turns out the 'gloomsters and doomsters' may have had a point) and Global issues like the war in Ukraine. It feels like policy makers just seem to be totally detached from the reality of normal peoples lives.

This was very expected given the situation with inflation and a lot of lenders have already increased their rates in anticipation of this increase. I think the Bank of England has to be careful not to increase rates too far and too fast as this could have a massive impact on people already struggling with the increased cost of living. Given how many factors are currently impacting inflation such as the war in Ukraine and still some elements of Covid impacting international manufacturing it's hard to see how increasing the base rate alone will get inflation under control however this is the only tool we have in our toolbox that we can currently control. The problem that the Bank of England currently faces is that the impact of doing nothing could be as bad if not worse than the impact of increasing rates. If you are currently on a fixed rate your mortgage won't be impacted by this increase however if your current fixed is due to expire within the next 6 months please speak to a mortgage adviser now so that they can secure you a rate now before we see any further increases.

The cost of living is clearly on everyone’s mind and managing inflation is the Bank of England’s remit. That being said, at Becketts we don’t believe we should just follow the Fed in all the action they take. Our economic position is quite different to the US with a much grater supply side inflation push. Policy error in interest rates would be much more likely to push the UK into a deeper recession that we are already likely to hit. Therefore growth in the economy must be balanced with some form of inflation curbing. We are glad it's not our job to choose!

The hike in base rate by 0.25% is perhaps lower than many expected, especially after the US Fed opted for a rise of 0.75% earlier in the week. The Bank of England, while mindful of inflation, must also have an eye on the cost of living crisis and potential recession risk, as well as the economic risks posed by Brexit, and are opting for a relatively measured approach to raising rates.

I suppose we should be glad that it was only 0.25% and not a 0.5% increase. The base rate is on a march ever upwards and now 1.25% feels like a huge jump from the 0.1% it was just a short time ago. However, the base rate was between 4.75% and 5.75% for most of 2006 and 2007 (pre-credit-crunch) so the rate being this low was always going to end at some point, I'm just not sure anyone (including the Bank) projected it rising quite this rapidly. The base rate peaked at 17% back in the 1970's, so in that context, 1.25% is still a very, very low rate and still looks low compared to a more historically normal 5% level.

Today's rise in interest rates won't come as much of a surprise. But whether or not a 0.25% increase is a good move won't be known for many months. That's the trouble. The Bank of England is tasked with predicting the unpredictable. Savers and borrowers would do well not to fall into the trap of trying to predict the future. There's little point in hoping that savings rates will go up to boost your nest egg, because rising interest rates usually go hand in hand with rising inflation. The net return on bank deposits will always will close to zero or negative, so appropriate longer term investing is crucial. For borrowers who require certainty, it can be wise to lock in to deals for a number of years. For example, those with fixed rate mortgages will not be affected by today's rise. The real challenge lies with many businesses, which may be faced with a double whammy of higher borrowing costs, combined with declining demand for goods and services.

Better late than never. The warning signs have been there for a while now. Yet of course the Bank of England remains reactive instead of proactive. Ripping off the band aid with a more immediate increase in rates might actually help stave off a recession and shock the system into easing back. A gradual increase has the opposite effect in my opinion, a recession ends up a self-fulfilling prophecy as the papers have more time to discuss the doom and gloom and inflation has more time to bite, thus ending up creating our own misery. A rising rate is meant to reduce inflation, and get people to save more. However petrol prices are still increasing at the pump. Goods and services are increasing. It's almost an excuse for people to raise prices so that the few can offset the coming drop in production and purchasing. What I find most interesting though is that while quantitative easing may have been rescinded centrally, banks and other property lenders are certainly not willing to give up their gravy train. Short term property lenders are dropping rates and increasing gearing. From 75% LTV on the purchase price to 85% on the Open Market Value, with rates dropping from 0.75% down to 0.69%. All the same while the long term lenders, while they are passing on the rate increases immediately they are also increasing gearing, most noticeably with commercial lending, going from 65% up to 70% at a number of lenders. They are creating their own synthetic quantitative easing package because they don't want to stop lending nor property investors to stop borrowing. All the while property prices are at or near their peak and further borrowing right now has a devasting potential consequence if house prices do start to drop as a result of households that have to sell quickly. Customers will end up in negative equity, further reinforced with the loss of purchasing power as a result of inflation. I'm recommending clients buy, refurbish and sell cheaper properties to build a war chest for the coming foreclosure rush, to buy up higher yielding properties that are likely to ride any recession due to having professional tenants whose salaries have inflation protection clauses. If not it might just be best to sit on their hands, while waiting for a bargain (at the unfortunate expense of someone else's misery).

Will this latest rate rise filter through to savers or just hit borrowers? You suspect the latter. Rate rises continue to squeeze us harder and harder but as they have been at record lows for so long, and with inflation spiralling out of control, it is no surprise they are moving up. I fear for those whose mortgages are near review as they will feel a significant shock.

Thursday's rate decision was symbolism at work. The fact that we had a 0.25% increase rather than a 0.5% hike is a sure sign that the Bank of England understands that this is all about appearing to have some level of control in an economic environment where they in fact have very little actual control. In predicting the economy will shrink by 0.3% in the second quarter, they are highlighting why they simply cannot afford to raise rates any faster. To do so will run the very real risk of stagflation. The figure everyone on both sides of the Atlantic will be looking at very nervously at the moment is the rate of unemployment. If that starts to tick up, things could deteriorate quickly.

Whilst a raise might control inflation we need to see banks passing on such rises to its savers. Like with petrol prices, it is frustrating to see your mortgage rates rise yet receive the same paltry interest rates at 0.1%.