The Bank of England’s Monetary Policy Committee has voted to increase the Bank Rate from 1.0% to 1.25%, marking the fifth consecutive increase as the Committee continues to try and keep rising inflation under control.

The MPC has voted for a rise in each of the last four meetings, in December, February, March and six weeks ago in May which saw members vote 6-3 to increase the Bank Rate from 0.75% to 1.0%, with 3 members voting for a higher increase to 1.25%.

The Committee advised that its decision to increase the Bank Rate to 1.25% was “In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent.”

n the MPC’s central projections in the May Monetary Policy Report, UK GDP growth was expected to slow sharply over the first half of the forecast period and, although the labour market was expected to tighten slightly further in the near term, the unemployment rate was projected to rise to 5½% in three years’ time. CPI inflation was expected to average slightly over 10% at its peak in 2022 Q4.

Conditioned on the rising market-implied path for Bank Rate at that time and the MPC’s forecasting convention for future energy prices, CPI inflation was projected to fall to a little above the 2% target in two years’ time, largely reflecting the waning influence of external factors, and to be well below the target in three years, mainly reflecting weaker domestic pressures. The risks to the inflation projection were judged to be skewed to the upside at these points.

According to the Committee, there has been relatively little news in global and domestic economic data since the May Report, although there have been significant movements in financial markets. UK-weighted global growth in 2022 Q2 appears to be broadly in line with expectations. Global inflationary pressures have remained elevated and oil prices have risen further. Equity markets have ended the period lower, while short and longer-term government bond yields have continued to rise.

UK GDP was weaker than expected in April, partly reflecting a further decline in Test and Trace activity. Bank staff now expect GDP to fall by 0.3% in the second quarter as a whole, weaker than anticipated at the time of the May Report. Consumer confidence has fallen further, but other indicators of household spending appear to have held up. Some indicators of business sentiment have weakened, although they have so far remained more resilient than indicators of consumer confidence and consistent with positive underlying GDP growth.

The MPC highlighted that its inflation target applies at all times, reflecting the primacy of price stability in the UK monetary policy framework. The framework also recognises that there will be occasions when inflation will depart from the target as a result of shocks and disturbances. The economy has recently been subject to a succession of very large shocks. Monetary policy will ensure that, as the adjustment to these shocks occurs, CPI inflation will return to the 2% target sustainably in the medium term, while minimising undesirable volatility in output.

The finance industry was quick to react to the news. Here’s what they’re saying:

Frances Haque, Santander UK Chief Economist, comments: “As expected, the Monetary Policy Committee raised Bank Rate for the fifth consecutive meeting to 1.25% despite economic growth for March and April falling.

“Given falling growth rates and inflation predicted to peak again in October with the next energy price cap, the outlook for the UK economy looks bleak.  However, the government’s support package may keep the UK economy from falling into a technical recession which will have been included in the Committee’s deliberations.

“Yet, despite the outlook for weak growth, the labour market remains strong and so the Committee will need to continue to balance inflation expectations from stronger medium-term wage growth against weak economic growth as we continue to move through 2022.”

Anna Clare Harper, director of real estate technology platform IMMO, says: “Higher interest rates have their most significant impact for borrowers on variable-rate mortgages. Those who have chosen flexibility over a fixed commitment in such personal financial decisions will see their costs increase. It’s likely that these property owners will become more willing to sell at lower prices, boosting liquidity and supply in the housing market.

“This is, however, expected to be a relatively short-term move, creating a temporary shift in negotiating power from sellers to buyers for the next 18 to 24 months rather than forever.

“As ever, cash buyers will have the upper hand in some respects but they will also now have a higher cost of holding cash.”

Kevin Webb, Managing Director, Legal & General Surveying Services, comments: “The Bank of England’s latest decision to raise the base rate will have an impact on the UK property market. Repayments will rise for those on tracker mortgages and others who need to find a new fixed-rate product. A rise in rates could also threaten to put the brakes on the housing market’s growth, as prospective homeowners trying to step onto the ladder decide instead to hold off buying and try to balance the books during a time when the cost of living is going up.

“For those planning to buy a home, it is likely to be the single biggest transaction they make during their lifetime, and they will naturally want to ensure they are as comfortable as they can be when making the purchase. Today’s news makes it all the more important to seek the expertise of surveyors, who can give immense value and reassurance to homebuyers.”

Paul Broadhead, Head of Mortgage and Housing Policy at the BSA said: “Another Bank Rate rise, the fifth since December, will be very unwelcome news for many homeowners. With around eight in ten mortgage holders on fixed rates, it will take time for these rises to be felt by most borrowers, as they will continue to pay the same each month until their current deal ends.

“The financial impact of re-mortgaging could be less than people expect, although I appreciate that any increase in monthly expenditure given the rising costs of living will be unwelcome. It’s likely to cost those at the end of a 2-year fixed rate who re-mortgage to a new similar deal up to £80 more a month. For those on 5-year fixed rates, their re-mortgage is likely to increase their payments by nearer £35 a month1.

“Lenders are sensitive to the rising number of people facing a squeezed household budget. Anyone who is worried about their ability to pay their mortgage should get in touch with their lender early. Lenders will do everything possible to help.”

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “With latest GDP figures showing a fall for the second consecutive month, it is no surprise that the Bank has raised Base Rate again. Before the GDP figures were released, the money markets had been factoring in a 50-basis points rise but with Swaps increasingly markedly, many specialist lenders have already repriced and a 25-basis points increase was expected.

“Those who are on a variable-rate mortgage and are worried about further rising rates should consider opting for a fixed-rate deal. Rates can be reserved up to six months before you need them so it may be worth borrowers securing a deal now which can be moved onto when their existing deal comes to an end. Speak to an independent mortgage broker who will look at all the deals on the market and find the right one for your circumstances.”

Vikki Jefferies, Proposition Director, PRIMIS, comments: “The latest base rate rise from the Bank of England will come as no surprise with inflation now at its highest level in 40-years. The rising cost of living, particularly with food and fuel prices increasing, means consumers will be looking for ways to reduce costs and manage their monthly outgoings.

“Brokers will therefore need to be more proactive to secure the best outcomes for their clients. In an increasingly complex mortgage market – one where lenders are reducing the number of products they offer – their support is vital in helping borrowers who need to consolidate debt or remortgage.

“During these uncertain times, advisers will need to draw on a wealth of resources and have access to a broad range of products help their clients. Those that are part of a network will have an abundance of support available to them to help them meet the changing needs of their clients.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “This rise comes as no surprise and the market has already factored in it, particularly for new borrowers.

“With around half of homeowners on five-year fixed rate agreements and only 5 per cent on variable terms, its impact will be marginal. It will have more of an effect on confidence to take on debt and disproportionately will impact lower-income households who are less able to dip into savings to make up a shortfall.

“Affordability calculations may be compromised which could affect borrowing potential as well. The net result will slow demand and the pace of house price growth but won’t reduce prices bearing in mind the continuing huge imbalance between supply and demand.”