BoE raises rates to 4% - reaction

The move by Threadneedle Street was as expected, but the language used in the minutes seems to suggest they might stop here. Sterling is now coming off sharply, which suggests that the market thinks the rate hiking cycle has pretty much finished.

With Bank Rate rising to 4%, that is great news for savers in traditional bank accounts. The years of 0-1% savings rates are now in the past. However, investors in UK fixed interest securities will surely see their capital values decline as yields inevitably rise to counter the risk-free rate rising… unless the rise was already priced in. Inevitably, owning equities will prove a long-term haven from rising inflation and the pursuant interest rate increases. Sure, businesses will have to adapt to higher borrowing costs which are the remedy to the high inflation rates that have also caused businesses to be clobbered by higher employment costs. But business owners and managing directors still have their personal goals and they need to make money. Thus, companies will, on average make money and shareholders will benefit.

For investors this would seem a very appropriate time to make those ISA subscriptions before the end of this tax year if they have not already done so, and take advantage of the yields currently on offer in the fixed income market along with those falls from equity prices seen in 2022. This year is likely to be a good year for markets but a trickier year for the economy. Whilst it is expected that inflation will fall throughout the remainder of the year, it will remain above central bank targets and therefore have a continued negative effect on household income. It is likely that we have seen the peak for UK inflation and it will not be long before we hear that the Bank of England’s current monetary policy tightening programme is near an end.

Rising base rates mean rising interest rates for businesses. It makes it more expensive to invest in new CAPEX for machinery. This makes it harder to increase productivity, which is much needed in the economy. In other areas of business finance, the rates will rise. This will eat away at hard earned profits or will add to losses. Either way it hurts the profit and loss statement and makes doing business more expensive. I would have thought these rising interest costs will be passed on to customers so in a way it also fuels inflation, which is the very opposite of what it aims to achieve.

My biggest fear is that people won't be able to pay their mortgages and renters won't be able to pay the increased rent due to the landlord's mortgage payments going up. Savings rates will rise a little but will still be well below inflation. I wonder what would happen to inflation if Shell used some of their vast profit to reduce energy prices? Surely that is a better way to lower inflation rather than hitting people even harder by raising interest rates?

As predicted, the Bank of England continues to increase the base rate to combat inflation. This will have an impact on those currently on trackers, variable and discount rate mortgages as well as anyone currently on a bank's SVR (standard variable rate). Those borrowers will see an increase in the coming days and weeks as their lenders align to the new base rate. These are difficult times for many borrowers across all credit facilities as they will see increased costs, whilst still having to cope with inflation at high levels. This becomes a compound effect for those that are currently finding times tough. Even though saving rates are increasing, the cost of inflation is still devaluing money with lower returns than the current level of inflation. Savings rates minus inflation equals the value of money.

Although this base rate increase was expected, my honest opinion is that they are going too far, too fast and that the economy is going to be hit hard. The Bank of England, after reacting at the speed of a sloth to rising inflation, has now gone the opposite way and are like a Cheetah on caffeine. We are already seeing a huge increase in business insolvency and, on the positive side, the root causes of inflation like wholesale energy prices are easing. Once again this will increase the cost of loans, mortgages and other lending for SMEs, property investors and consumers. This was the wrong decision yet again from Threadneedle Street.

Threadneedle Street continues to prescribe its monetary medicine to the ailing patient that is the UK economy. Whilst a 0.5% hike was widely flagged and not a surprise, it will come as a further nasty shock to already overstretched households. I think they've raised the base rate again because they're concerned about high inflation becoming embedded if strike action leads to higher wage growth. After a couple of months of falling fixed-rate deals, I expect mortgage rates to rise again in response, placing further downward pressure on house prices.

A rise of 0.5% was so widely expected, in no small part due to previous comments from the Bank of England, that they were almost duty-bound to follow through. For a mortgage market still recovering from the chaos of the mini-Budget, the last thing anyone wants or needs is further surprises. Boring predictability is very much the order of the day.

Raising rates one more time is a good 'last action' call before taking a breath and assessing the impact and effectiveness of the rapid rise in interest rates. This was a reactive quick-fix policy implemented after the mini-Budget so we need to take the time to truly analyse the impact. We are hopefully back to predictable, market-comforting rises which are well thought-out and planned. We need consistent and stable decision-making across the board to give confidence and support to businesses.

It was widely predicted that the Bank of England would raise interest rates to 4% and that they believed inflation had peaked. Hopefully this will in turn mean savings rates will offer more to the wider public and encourage investors to be more active meaning the economy will emerge quickly from its winter slumber. For mortgages I would suspect that this will be the last increase in base rate for the foreseeable future and with swap rates dropping and stabilising we are seeing fixed rates continue to fall to a more palatable level for borrowers.

The Bank of England are massively out of touch with the public and everyday businesses. This announcement will yet again penalise ordinary working people who can least afford it. The IMF has already predicted the UK economy will contract by 0.6% this year. Sanctions hit-Russia is predicted to do better than the UK. I say it's time to cut interest rates not raise them.

Whilst today's news from the Bank of England takes the central bank rate to a level not seen for well over a decade, the increase was widely expected and telegraphed by the Bank so there was no surprise. The only thing markets were waiting on is whether it would be 0.25% or 0.5%. As the news from the Bank today is in line with market expectations, there's no reason it would have any impact on new mortgage products, as today's increase will have already been factored into lenders' plans.

An expected rise with a bit more to go over the next 3 months before we see rates plateau and then hopefully reduce towards the end of the year.
Fixed rate pricing should continue to fall given the inflation threat is subsiding (though not gone) and therefore a positive outlook for borrowers and savers in the short term.
It should hopefully give confidence to the wider economy that things will start improving towards the end of the year and 2024 looks promising.