The Bank of England (BOE) has announced an increase in interest rates by 0.25%, taking the rate from 4.25% to 4.5%, the highest level since 2008.

The decision, made by the BOE’s Monetary Policy Committee (MPC), was made with a vote of 7-2, reflecting an ongoing effort to curb stubbornly high inflation and manage a stronger-than-expected UK economy.

This hike marks the 11th consecutive increase since December 2021, when rates were a mere 0.1%. These successive hikes demonstrate the central bank’s aggressive stance to rein in soaring inflation which peaked at an alarming 11.1% in October 2022.

Last month’s inflation data showed a slight slowdown with UK inflation at 10.1%, which, while lower than the October peak, is still significantly above the BOE’s target of 2%.

The persistently high inflation figures highlight the challenges faced by the BOE as it attempts to steer the economy through a complex mix of pandemic recovery, supply chain disruptions, and energy price spikes.

The latest interest rate hike signals the BOE’s continued commitment to tackle inflation despite potential risks to economic growth.

The central bank’s proactive stance reflects the delicate balance it must strike between supporting the UK’s economic recovery and preventing an uncontrolled inflation spiral.

Reaction

Steve Seal, CEO, Bluestone Mortgages: 

“Today’s decision by the Bank of England to increase interest rates by 0.25% to 4.5% – marking the 12th consecutive hike and the highest level since the 2008 crisis – will be putting a chokehold on people’s personal finances. Consecutive rate hikes and persistent inflationary pressures over the past year have already pushed mortgage repayments higher, and added to the affordability challenges faced by those looking to get a foot on the property ladder.
“Individuals who are struggling to keep up with their mortgage payments or aiming to take their first steps onto the property ladder should know that assistance is readily accessible. It is critical to contact their lender as soon as possible or seek advice from a mortgage broker to consider their options. As an industry, it is our responsibility to direct customers to the necessary assistance to make their dream of homeownership a reality.”

Rob Clifford, chief executive of mortgage and protection network, Stonebridge:

“As with recent increases to Bank Base Rate, there was more than a hint of inevitability about this decision given how high inflation remains and other wider factors including the US Federal Reserve’s decision to increase interest rates there earlier this month. That said, while the Fed hinted this could be its last increase for some time, there will be many who feel our MPC are not able to signal we are at the end of our own interest rate increase journey yet. The pressure continues to build on the Bank while inflation remains high, and its 2% target looks a long way away, which means we cannot rule out further increases in the months ahead.

“That being the case, there remains something of a disconnect between BBR and mortgage product pricing, although swap rates have also been rising in recent days. It’s a tricky mortgage market for existing and would-be borrowers to unpick, and the need for professional mortgage advice in this environment seems greater than ever. Movements in rates always hit the headlines, and can be of concern for borrowers, so advisers need to be using today’s announcement to make contact with their customer base and to outline the options that are available to them, particularly for those who are going to end up paying more as a result of today’s decision.”