Reported by Robyn Hall - The Negotiator
The Bank of England today raised interest rates to 4% - a 14-year high and the 10th consecutive raise - making rates their highest since 2008 as double digit inflation continues to bite.
The Bank of England today raised the base rate from 3.5% to 4% – a 14-year high and the 10th consecutive raise – making rates their highest since 2008 as double digit inflation continues to bite. While most borrowers are already fixed into mortgage deals some 2.2 million are thought to be exposed to rate rises and more than a million are forecast to renew fixed-rate deals later this year.
Meanwhile Nationwide reported yesterday that house prices in the UK fell again in January, sliding for the fifth month in a row.
INFLATION
The Bank of England says that while global consumer price inflation remains high it is likely to have peaked in the UK as well as in other advanced economies.
“Many central banks have continued to tighten monetary policy, although market pricing indicates reductions in policy rates further ahead.
“Given the lags in monetary policy transmission, the increases in Bank Rate since December 2021 are expected to have an increasing impact on the economy in the coming quarters.
“The Committee has voted to increase Bank Rate by 0.5 percentage points, to 4%, at this meeting. Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices.“However, the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation.”
“Looking further ahead, the MPC will adjust Bank Rate as necessary to return inflation to the 2% target sustainably in the medium term, in line with its remit.”
GLOOM
However despite the gloom some long-term money deals have already started to fall. Just this week Virgin Money launched a sub 4% 10-year fixed rate deal.
Nathan Emerson, Propertymark
Nathan Emerson, Chief Executive of Propertymark, says: “We of course are seeing challenges within the market as the cost of people’s mortgage payments are in some cases a lot higher than they have been traditionally used to.
“However, due to the demand for homes continuing to outweigh the number of properties available, this is fuelling a more stable market.
“With Banks stress testing people’s finances for many years, arrears and repossessions aren’t drastically increasing and we are therefore seeing a levelling out of the market and a return to more normal levels of housing transactions.”
INDUSTRY REACTION
Yesterday the Federal Reserve raised rates 0.25% while later this afternoon the European Central Bank will also make its interest rate decision, with many pundits forcasting a 0.5% raise too.
