Interest rates – live: Mortgage warning as Bank raises rates to highest level since 2008
Experts have warned the rise will affect the property market, with lenders already raising their rates
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Experts have warned of mortgage increases after the Bank of England hiked up interest rates to the highest level since 2008 amid soaring inflation.
Rates have risen from 4.25 per cent to 4.5 per cent, representing a 0.25 percentage point increase, as the Bank of England aims to bring UK inflation down to its 2 per cent target.
Thomas Jackson, Managing Director for Cooper Associates Mortgages, said the rise will affect the property market, with lenders already raising their rates.
He said: “This next increase will have further consequences on homeowners and home buyers. Anticipating today’s rise, mortgage lenders have already raised their rates.
“Those on tracker mortgages and standard variable rates (SVR), are likely to see their monthly payments increase. The average SVR is now above 7%, its highest since 2008. Those on fixed mortgages are ok for the time being but anyone due for remortgage soon should put talking to a mortgage adviser to the top of their list. “
It comes as UK Consumer Prices Index (CPI) inflation remained firmly in double digits in March.
Governor hints at further interest rate rise
Bank of England governor Bailey hinted at the possibility of further interest rate hikes in inflation continues to prove so stubborn, saying that there are still uncertainties in the outlook for the global economy.
He said the Monetary Policy Committee will continue to “monitor closely indications of persistent inflationary pressures … If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”.
Food inflation has been “more persistent than we expected,” said Mr Bailey, though should ease soon. Deputy governor Ben Broadbent said it appears food price inflation has already peaked.
On energy bills, the Bank said the typical annual energy bill should fall to £2,100 in the final quarter of 2023.
Bank of England Governor Andrew Bailey has said the Bank’s chief economist Huw Pill chose the wrong words when warning that people have to accept they are worse off because of inflation.
“We are very conscious that all inflation is difficult, and particularly for those least well off,” he said.
“This inflation is particularly difficult for those least well off because it is concentrated in what are called the essentials of life, food and energy, and people on lower incomes have a larger proportion of their consumption in the essentials of life.”
He added: “The economics of the hit to national income are clear.
“I want it to be very clear that we are very sensitive to the position of all people, but particularly people on lower incomes.
“I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
“What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.”
Will inflation decrease this year?
In February, the Bank of England said it expects inflation to fall sharply over the rest of the year from its current level of 10.1%.
However, the National Institute of Economic and Social Research (Niesr) forecast that inflation will remain persistently higher than expected over the rest of 2023, in a worrying prediction for under-pressure households.
In its latest set of projections, the forecaster said inflation is expected to drop from its current level to 5.4% by the end of 2023.
Inflation has rocketed over the past year on the back of spiking energy prices after the Russian invasion of Ukraine and more recent jumps in food costs.
Niesr said inflation will continue to cool but households will see a 0.7% drop in real disposable income over the year.
The predictions are significantly higher than those of the Government’s official forecaster, the Office for Budget Responsibility (OBR), which estimated in March that inflation would drop to 2.9% by the end of the year.
Sir Howard Davies, chairman of the NatWest Group, said he was not surprised by the Bank of England’s interest rate decision.
He said it would have been “very strange if the Bank of England had not moved today”.
Sir Howard was asked about the Government’s target to halve inflation by the end of the year, saying that was a “political statement, that is not what the Bank of England is supposed to be doing”.
“What the Bank of England is supposed to be doing is getting it back down to 2%. Normally, the bank looks at that on a two-year horizon. And that’s going to be quite a challenge, I think.
“Indeed, they’re forecasting at the moment that they won’t be meeting that in a couple of years’ time and I think that’s the worrying thing. If a central bank has to forecast that it won’t be meeting its target with interest rates as they currently are, then really it’s incumbent on them to do something about that,” he told BBC Radio 4’s World at One programme.
Interest rate rises risk compounding cost-of-living crisis - ICAEW
The Bank of England risks “overdoing” rate rises, which could compound the cost-of-living crisis for many, Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales (ICAEW), has said.
He said: “Another rate rise will come as a nasty blow to those people and companies already battling escalating borrowing costs and a multitude of other severe cost pressures.
“The Monetary Policy Committee needs to be more forward-looking in setting interest rates rather than being overly focused on current inflation given the long-time lag between rate rises and its impact on the broader economy.
“With most of the interest rate rises yet to pass through to households and businesses, the Bank of England risks overdoing the rate hikes, adding to squeeze on our growth prospects and aggravating the cost-of-living crisis.”
He added: “Given that the Bank of England is still expecting inflation to fall back, the case for rate-setters to pivot towards cutting interest rates is likely to strengthen.”
Chief economist ‘chose wrong words’ about impact of inflation - Bank of England governor
Bank of England governor Andrew Bailey has said the Bank’s chief economist Huw Pill chose the wrong words when warning that people have to accept they are worse off because of inflation.
“We are very conscious that all inflation is difficult, and particularly for those least well off,” he said.
“This inflation is particularly difficult for those least well off because it is concentrated in what are called the essentials of life, food and energy, and people on lower incomes have a larger proportion of their consumption in the essentials of life.”
He added: “The economics of the hit to national income are clear.
“I want it to be very clear that we are very sensitive to the position of all people, but particularly people on lower incomes.
“I don’t think Huw’s choice of words was the right one in that sense, I have to be honest, and I think he would agree with me.
“What I’m afraid we can’t duck is this very big hit to national income, which we have to deal with.”
Jeremy Hunt: Not ‘automatic’ Government will meet target of halving inflation this year
The Bank of England is predicting that the UK Government will meet its target of halving inflation this year, according to Jeremy Hunt.
However, the chanclelor warned that it is not “automatic” that the target will be reached.
The pledge is one of Prime Minister Rishi Sunak’s key aims before the next general election.
The Chancellor, who is currently in Japan meeting other G7 finance ministers, spoke to broadcasters about UK inflation and the decision for the Bank of England to increase interest rates on Thursday.
Asked whether he was confident of meeting Mr Sunak’s inflation target, Mr Hunt said: “The Bank of England is predicting that we will hit the inflation target.
“But there has never been anything automatic about hitting it.
“That is why it is so important, if we’re going to bring certainty back to family finance, stop prices rising, that we stick to our plan to halve it.”
Prime Minister ‘fully committed’ to halving inflation - Downing Street
The Prime Minister is “fully committed” to his five pledges, including to halve inflation by the end of the year, Downing Street has said.
Inflation is expected to decline to 5.1% in the fourth quarter of the year, meaning the Government would narrowly hit its target by the end of the year.
A spokesman for the Prime Minister said: “It remains the Prime Minister’s focus to reduce inflation, to halve it this year.
He said that No10 had always said that “it isn’t a given, it isn’t a certainty. It is important that we continue to ensure economic stability in order to ensure that inflation can drop this year.
“We are fully committed to hitting those five promises the Prime Minister set out in January.”
Millions face mortgage pain - the full story
Millions of Britons are facing painful increases in their mortgage costs after the Bank of England raised interest rates for the 12th time in a row to tackle “stubbornly high” inflation.
The Bank rejected accusations that it had gone too far and was “overcorrecting” for the inflation crisis after the Monetary Policy Committee (MPC) voted to hike the base interest rate from 4.25 per cent to 4.5 per cent.
The central bank warned inflation is set to decline less rapidly this year than hoped because food prices hikes have gone on longer than expected, partly due to the Ukraine war and poor harvests in Europe.
However, despite ongoing cost of living pressures and mortgage payment pain, the Bank offered a more optimistic forecast for the wider economy – predicting Britain would avoid recession in the year ahead.
Labour said Rishi Sunak should take the blame for “the Tory mortgage penalty”, saying Britons coming off fixed-rate mortgages will be “wracked with anxiety” about paying hundreds of pounds more a month.
Homeowners whose mortgages directly track the base rate face an average annual hike of around £5,000 as a result of the 12th hike in a row, according to UK Finance. The body warned that the average tracker payment had increased £420 a month since the base rate hikes began.
We’re closing our live coverage of today’s interest rate hike but keep checking independent.co.uk for the latest updates.
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