The Bank of England has raised interest rates for the 10th time in a row, upping the base rate by 0.5% to 4%.

The increase see rates hit the highest level seen since autumn 2008 as the central bank battles to bring down inflation.

With consumer price inflation having eased slightly in November, down to 10.7% from 11.1% in October, there had been speculation that a rise could have been smaller.

However, the Monetary Policy Committee voted 7 to 2 for the 0.5% rise. The BoE has an inflation target of 2%.

Later today the European Central Bank is expected to increase rates across the EU by 0.5% while the US Federal Reserve lifted its rates by 0.25% last night.

Reaction

Emma Hollingworth, managing director of mortgages at MPowered Mortgages:

“While today’s decision by the Bank of England to raise interest rates by 0.5% will again increase the cost of borrowing across the UK, the mortgage market should remain resilient. This is especially the case given swap rates continue to make for positive reading.

“However, the cost-of-living is likely going to stay high for the foreseeable future. It is important the industry continues to support homebuyers and remortgagers by keeping rates as low as possible and by innovating products to suit consumer needs. 

“Providing a smooth mortgage journey also continues to be important and at MPowered Mortgages we are committed to using AI and data-driven innovation to make the mortgage journey as quick and simple as possible for all involved.”

Rachel Springall, finance expert at Moneyfacts.co.uk:

“Borrowers coming off their fixed rate deal will be disappointed to see this latest rise to the Bank of England base rate, particularly if they plan to sit on their standard variable revert rate over the shorter-term in hopes that fixed rates will come down before they refinance. The mortgage market is slowly recovering from the volatility of interest rate uncertainty towards the tail end of 2022, but the markets are expecting both rises and falls to base rate this year. Lenders tend to pass base rate rises onto SVRs within a few months and a rise of 0.50% on the current average SVR of 6.84% would add approximately £1,536 onto total repayments over two years.

“The cost of living crisis presents a challenging situation for borrowers with an existing mortgage and those who are looking to get onto the property ladder. First-time buyers with a limited deposit may put their plans on hold until they can more comfortably afford to take out a mortgage. New buyers play a crucial role in keeping the market moving, but it would be understandable to see caution when affordable housing is in such short supply. Borrowers with an existing deal may struggle to make overpayments and be concerned about future affordability due to unpredictable house prices and interest rates. Seeking advice before entering any arrangement is wise, as the best deal for any borrower will depend on their individual circumstances.”

Adam Ruddle, chief investment officer at LV=:

“The Bank of England’s decision to raise interest rates by 0.5 percentage points is in line with our expectations. Though widely expected to fall, inflation remains at over five times the Bank of England’s target, squeezing the incomes of millions of people in Britain.  The Bank has been clear that managing inflation down is its key responsibility – even if that means subdued economic growth. 

“While an increased rate helps tackle inflation it hinders economic growth and increases mortgage payments. Though inflation is beginning to fall, core inflation (that is, inflation excluding food and energy) is looking quite stubborn and the Bank have shown they want to take the bulk of the bitter economic medicine now rather than gently over the first half of the year. We believe the Bank will increase rates perhaps once more in March before pausing. I anticipate that they will peak at 4.5% this year.”

Andrew Gething, managing director of MorganAsh: 

“With a clear mandate to reduce inflation it is no surprise to see the half-point hike announced today. There are solid indications that inflationary pressures are reducing, so there is a fair chance this increase will not need to be repeated. 

“While it is painful for mortgage borrowers, we need to put in perspective the very low rates the mortgage market has enjoyed were unsustainable, and hoping they will return to such low rates is unrealistic.”  

“With every successive rate rise, consumer vulnerability becomes an even bigger factor. The heavy burden of higher mortgage payments will stretch borrowers and force many to make difficult compromises, particularly when it comes to protection and insurance. With Consumer Duty just months away, the FCA has rightly identified a significant shortcoming in preparation by firms to measure vulnerability and monitor customer outcomes.

“As more consumers potentially display vulnerable characteristics, firms must place greater emphasis on their monitoring and data strategy. Not only is it essential in protecting customers and ensuring fair value but delivering good outcomes as required by Consumer Duty. All the above have been identified as key areas of focus for firms by the FCA.

“Recent bad press on the treatment of vulnerable consumers by the energy sector should be taken as a warning that pressure may well come from the consumer as well as the regulator.”

Paul Wilson, chief investment officer at Channel Capital:

“A decade of record-low interest rates was not economically healthy or sustainable. But moving from all-time lows to a 15-year high of 4% in the space of 14 months has inevitably created challenges for lenders and borrowers alike.

“For lenders, it has hindered their efforts to secure senior debt from banks and institutions, many of which are reticent to deploy capital in the current climate of changing rates. The shortage in senior debt – which is essential, given it makes up the majority of a lenders’ funding stack – is, in turn, preventing or limiting lenders from issuing loans to clients. It becomes a vicious circle.

“At times like these, other sources of capital become more important. Mezzanine finance is a prime example, and we’re seeing more lenders look to this option when building their funding stack. By securing mezzanine finance from more nimble, ambitious, or proactive investors, lenders are then able to provide much-needed confidence to the senior debt providers. As such, more must be done to champion the role of mezzanine finance in the current climate; it is keeping the lending industry active and is likely to remain in high demand over the months and years to come.”

Brian Murphy, head of lending at Mortgage Advice Bureau:

“The end could be in sight, but not yet in touching distance. The decision today is of course expected, but not welcomed, as the Bank of England has chosen to continue their war on inflation with more rate rises, pushing the base rate to a 15-year high. This will inevitably leave many homeowners feeling stuck and worried by the prospect of their mortgage costs getting even higher.

“However, there could be a glimmer of hope on the horizon, with forecasts predicting a fall in rates later this year. We urge anyone who is concerned about their ability to pay their mortgage or to afford a new mortgage to speak to an adviser, who can help you navigate what may feel like an overwhelming situation. As rising bills continue to squeeze household budgets, it would be good practice to shop around for the best deals – including considering the switch to a tracker mortgage. It’s hard to feel positive at the moment, but all predictions suggest we are close to reaching the peak of the hikes – and all eyes will be on the next decision to determine whether interest rates have any further distance to climb.”

Tara Flynn, personal finance expert of financial comparison site Choosewisely.co.uk: 

“Families are facing numerous challenges, and an interest rate hike is the last thing they need. The Bank of England argues that increasing interest rates helps control inflation but appears indifferent to the impact this will have on millions of homeowners whose mortgages are due for renewal, credit card holders, and those seeking loans.

“It’s widely acknowledged that the cost-of-living crisis has led to a significant increase in credit card usage, as families have been compelled to use them to cover escalating expenses such as energy bills, fuel, and food. However, they are now being penalised for something they would prefer not to do; it’s absolutely heartbreaking.”

Jatin Ondhia, CEO of Shojin:

“After ten consecutive rate hikes, there is a worrying sense of déjà vue, as the Bank of England’s heavy-handed approach shows no signs of abating. Undoubtedly, this move will present further challenges ahead, just days after the IMF downgraded its growth forecast for the UK’s economy.

“As investors continue to navigate testing market conditions, the reduction of real returns through higher inflation represents a significant threat to both fixed income investments as well as equities. Against these headwinds, investors must keep a cool head and consider the tools at their disposal to make their money work harder.

“I would expect the diversification of investment portfolios to remain a prominent trend in 2023, as inflation remains in double figures but rates rise. It is also likely that tax-efficient investments will gain increasing traction in the months ahead, with investors trying to manage returns in the most effective ways possible.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman:

“The effects of the Bank of England’s base rate decision have seemingly been discounted by many homebuyers and sellers who are on fixed-rate deals which don’t expire for some time yet. But don’t get me wrong, those directly impacted by the change will know all about it in their repayments.

“The impact on house prices has been a reminder that negotiations can be tough if transactions are to happen as prospects are not exactly rosy.

“While another base-rate rise is unwelcome, more attention is being focused on two- and five-year fixed-rate mortgages, which thankfully have started to fall. This will bring much-needed stability and confidence to take on debt, despite continuing worries about the economy.”

Tomer Aboody, director of property lender MT Finance:

“Borrowers will be hoping that this latest rate rise will be one of the last to come in quick succession.

“With Rishi Sunak’s government pushing to halve inflation by the end of the year, it is not unreasonable to question whether there could be an even bigger stimulus for the property market in the form of a possible reduction in interest rates from next year.

“One thing’s for sure, consumers are already preparing for more tough times ahead while they wait for some relief from aggressive rate rises.”

Stuart Wilson, chair of Air Club: 

“The Bank’s decision today will have surprised only those who have avoided reading a paper for the past year and is a necessary move with inflation remaining above 10%. But just because something is expected doesn’t mean it’s not noteworthy. Today marks the tenth consecutive rate increase from by the Bank of England.

“Other experts can go into detail comparing rates during each of the past ten years against the others, but the fact is that many homeowners are already struggling.  Over-55s who have fewer options to boost their income and may battle to remortgage given how tight affordability criteria are right now are likely to be particularly impacted by today’s increase.

“While there is no magic bullet and rates in the equity release market have also risen following the mini-Budget’s impact on bond markets, these products do offer some older borrowers a viable option.  Refinancing and then choosing to make interest as well as capital repayments can help to ease the pressure on older homeowners while at the same time managing the roll-up of interest.

“The focus needs to be on educating the wider financial services community and homeowners as to the options offered by later life lending products rather than hoping inflation and interest rates will fall.”

Scott Clay, head of introducers at Together:

“The minor 0.5% rate rise suggests policymakers are finally easing off the pedal to relieve inflationary pressures. Borrowers may feel initially skittish about future mortgage repayment costs, but for the most part, due to previous lender price considerations the impact to actual prices should be minimal.

“Given the fact the UK economy is expected to suffer more than the Russian economy this year, which is currently dealing with heavy sanctions and war, any surprise decision from Bank of England is likely to be a positive one for borrowers.

“2-year swap rates are currently below 4% with 5-year money at 3.5% giving some signal as to where markets expect rates to go this year.”

“With that said, the cost-of-living crisis remains front of mind for all homes across the UK and for some, there will be difficult times ahead. We anticipate more would-be home buyers may experience short or acute payment issues in the short term. For anyone in this situation, it is always advisable to seek the support of a specialist lender who are in the best position to help.”