Bank of England increases base rate to 0.5%

The Bank of England said this latest move was to help push inflation back down to its 2% target. In the MPC minutes, the Bank noted: “Inflation is expected to increase further in coming months, to close to 6% in February and March, before peaking at around 7.25% in April. This projected peak is around 2 percentage points higher than expected in the November Report”

The MPC’s noted that the bank may need to raise interest rates “somewhat further”, in response to this, adding “our job is to ensure that inflation returns to our target in a sustainable way.”

This latest move is expected to drive mortgage rates upwards, putting financial pressure on households who are being hit with higher fuel and food bills.

However, industry experts point out that the mortgage market remains competitive with a number of attractive deals still on the market. It is not expected to dampen demand for mortgage products, particularly in the short term.

Rightmove’s director of property data Tim Bannister says: “The level of demand we’re seeing from home buyers at the start of the year suggests the rise in interest rates is unlikely to dampen the motivation to move.

“We’ve seen a real desire from both sellers and buyers to take action and move at the start of this year, and this is likely to outweigh the impact of an interest rate rise on house prices, at least in the short term.”

Economist and former MCP member Andrew Sentence criticised the Bank for being “behind the curve”, tweeting: “Well, well, well! @bankofengland raises interest rates by 0.25 percent as expected. But 4 members wanted to go further. Where were these votes for rising interest rates in the second half of 2021 when there was a very good argument for a pre-emptive rise? MPC is behind the curve.”

This jump in the base rate is likely to put pressure on lenders to increase mortgage rates.

Moneyfacts.co.uk finance expert Rachel Springer says: “Mortgage rates are on the rise. This base rate rise may come as disappointing news to borrowers who are not locked into a competitive rate. Lenders are still launching attractive deals onto the market, so anyone who is still debating on whether to fix may be wise to do so now.”

However, Kensington Mortgages capital markets and digital director Alex Maddox adds that the market had been anticipating this increase, and this has been priced into the financial markets that dictate the price of many mortgage deals. As a result, he says this latest rate rise may not result in an “instant feed-through to mortgage pricing”.

He says that lenders may use today’s decision to increase mortgage rates, making longer-term fixes a more attractive option for many customers.