The Bank has warned the inflation squeeze on households will intensify further this autumn after Russia’s invasion of Ukraine added to the pressure on energy prices.
Surging inflation – now expected to hit 8% next month – prompted the bank to hike its interest rate by 0.25 percentage points, taking it to its pre-pandemic level.
But instead of peaking in April, the rate of consumer price increases is forecast to hit an even higher level in October that could be “several percentage points” above what was pencilled in just last month, the bank said
Interest rates had been at a record low of 0.1% between March 2020 and December 2021. The rate rose from 0.1% to 0.25% in December 2021, and again to 0.5% last month, before the Bank increased it to 0.75% in March.
The rate is important because it sets the level of interest that the commercial banks charge us on financial products like mortgages.
The UK inflation rate increased to 5.5% in the year to January 2022, up from 5.4% the month before. This put pressure on the Bank of England to increase interest rates to try to slow down rising inflation.
The bank’s interest rate hike is the third increase in a row in as many policy meetings.
The increases directly affect around two million homeowners with variable rate mortgages.
Higher interest rates make borrowing more expensive. For households, that could mean higher mortgage costs, although – for the vast majority of homeowners – the impact is not immediate, and some may escape it entirely.
Recent years have seen an extraordinary period of cheap mortgages but, even before the Bank of England’s rate-setting Monetary Policy Committee began increasing interest rates in December, there were signs that the era of ultra-low mortgage rates was at an end.
Some lenders have raised rates for those applying for a new home loan.
However, brokers have predicted any rises in mortgage rates to be “slow and measured”, which would mean mortgages would stay cheap by historical standards for some time.
Source: The Times: Money Mentor, Sky News,