Central bank makes highly anticipated move…
With the UK’s inflation rate still high, the Bank of England (BoE) has increased interest rates by 0.5%, raising the current bank base rate from 4.5% to 5.0%.
The bank rate has now increased for the 13th consecutive time – climbing from a record low 0.1% in December 2021 to the highest level it has been since the economy was hit by the 2008 global financial crisis.
By increasing the cost of borrowing, the BoE has been trying to control soaring inflation, but consumer price index figures released on Wednesday showed that inflation remained at 8.7% in May.
“Having inflation still raging far higher than the UK’s target figure of 2% isn’t great, but the Bank of England not acting fast enough in raising rates by a great enough amount initially has led to where we are now,” Gary Bush, financial adviser at MortgageShop.com, commented.
“Unfortunately, the dogged pursuit of a notional inflation target by the government and Bank of England doesn’t appear to have any degree of patience built in,” Ross McMillan, owner and mortgage advisor at Blue Fish Mortgage Solutions, added.
“Within the bigger picture, rather than continuing to hammer the same nail repeatedly, it could be prudent and welcomed for the Bank of England to at least allow some time to assess whether the actions already taken have grasped a reasonable hold or whether the bigger picture does indeed need more hammering and nails to keep it straight.”
Luke Thompson, director at PAB Wealth Management, agreed, saying that we are now “at a tipping point where the Bank of England really needs to think about what it is doing with interest rates.”
“What they have been doing is having no real effect on the inflation figures, and all they are doing is creating pain for homeowners,” he remarked.
“I think the Bank of England has handled the whole situation around the base rate terribly. Eighteen months ago, they were telling us the inflation figures were transitory when they clearly weren’t, and they were far too slow to react to inflation when it was starting to run away at the end of 2021.”
UK Finance said the latest 0.5% base rate hike will lead to homeowners paying a monthly average of £47.43 more on their tracker mortgage and £30.28 more on their standard variable rate mortgage.
The trade body reminded those struggling with their mortgage payments to get in touch with their lender to discuss the options available, which may include a part payment plan, a mortgage term extension, a temporary switch to an interest-only mortgage, or a payment concession, including a zero-payment concession, if appropriate.
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