"The Bank of England now needs to consider whether continuing to raise rates is appropriate."
Earlier today, the Bank of England increased the base rate to 4.25%.
Wealth managers, mortgage brokers, investment and property market experts responded with their thoughts:
Scott Gallacher, chartered financial planner at independent financial advisers, Rowley Turton: "While the Bank of England's decision to raise interest rates to 4.25% may be aimed at controlling inflation, it risks killing UK businesses and hurting consumers. The policy of continually raising rates to control inflation has not worked, as evidenced by the surprise increase in inflation to 10.4%. The Bank of England now needs to consider whether continuing to raise rates is appropriate. While controlling inflation is important, it shouldn't come at the cost of the UK economy and its people. The Bank of England should adopt a more measured approach that considers the impact on businesses and consumers rather than continuing to rely on the hammer of ever-higher interest rates to try and nail down inflation."
David Robinson, co-founder and wealth manager at Wildcat Law: "Where the Fed leads, the Bank of England has to follow. This has been the case for much of this period as a large chunk of our inflation comes from the weakness of Sterling versus the Dollar. The good news is that the Fed appears to have adopted the correct strategy, as overall the US economy is proving to be robust and, with the exception of the obvious waves amongst specialist financial institutions, they look to be riding out the current storm. Looking at the UK's economic picture, this seems to be replicated. Yes it will bring a lot of pain to regular people but it looks like we may escape this without substantial business failures and significant unemployment."
Joshua Ellard, managing director at Finanze Business: "Price stability remains the primary macroeconomic objective of both the US and the UK. We have seen the UK housing market cool slightly over previous months as the cost of borrowing has increased. As with the previous 10 base rate increases, those on variable rate or tracker mortgages will imminently face higher monthly mortgage payments. Five-year fixed rates remain lower than two-year fixed rates, a stark contrast to what we have seen in recent years. We can conclude that lenders are expecting rates to fall in 2024, hence the discrepancy in pricing. The recent slump in housing transactions can be largely attributed to the fourth quarter of 2022. Due to the lag effect of data collection, it is only now that these figures are being observed. The increase has been widely expected by those across the financial services sector. As such, I expect to see little fluctuation resulting from today’s news. We still expect further increases to 4.5%-5% before we see rates start to come down."
Jamie Minors, managing director of estate agent, Minors & Brady: "Inflation has been too high for too long, therefore the 11th rate increase in a row will come as no shock to many. Since the fourth quarter of 2022, mortgage rates have been steadily reducing, which has helped soften the blow for buyers across the country. We are still seeing strong demand among home movers, however buyers clearly need to factor in the increased cost of mortgages. Providing people are reasonable with their numbers, we are still going to see good volumes of transactions in 2023, despite the base rate increase. Buyers want to buy, sellers want to sell and property experts need to give accurate, honest advice to ensure we can all help things to tick along."
Riz Malik, director of R3 Mortgages: "We need this rate rise as much as Boris needs another party. However, the Bank of England has a mandate to follow and after yesterday's inflation figures, there was little they could do. The saving grace is that the rise was only 25 basis points. Hopefully, we have reached the peak."
Gaurav Shukla, mortgage adviser at Home Me: "After Wednesday's announcement that inflation had risen to 10.4%, it was inevitable that the base rate would increase today to further reduce inflation quicker. With the spring Budget confirming that the OBR believes inflation will be 2.9% by the end of the year, the government have major work to do for that to be achieved. Increasing the base rate is one thing, but will this really help?"
Andrew Montlake, managing director of Coreco: "They say a week is a long time in politics, but a day is an aeon in the financial markets. In the past few days, we have seen the contradictory effects of a banking drama pushing rates down on the one hand, and the surprise rise in inflation pulling in the opposite direction. These opposing forces left the Bank of England with no real choice but to increase rates as expected by 0.25%, with doing nothing not an option and 0.5% going too far. What happens next is speculation, but the Bank of England should now take a proverbial time-out and give both the public and the markets time to breathe and settle. A period of calm is imperative, and rate rises take time to filter through. Central banks tend to go too far and only stop when something breaks. Potentially we are at that point now. This rollercoaster of ups and downs could continue for some time yet."
Justin Moy, founder at EHF Mortgages: "Unfortunately, this hike was not unexpected given the increase in inflation and the US rate increase earlier this week. The Monetary Policy Committee is committed to deliver low inflation, which will eventually bring welcome relief to mortgage holders, but in the very short term we will need to tighten our belts again. We will likely see fixed rates creep up over the next few weeks as swap rates factor these rate changes either side of the pond, and tracker rates will obviously increase by 0.25%. Let's all hope that this is the 'peak' of the base rate."
Tim Mottram, financial planner at Grey Parrot Financial Planning: "Further base rate rises are opening up more options for innovative financial planning solutions. With the current market volatility, many retirees are looking for secure returns to meet their income needs. One option that has opened up recently is purchasing National Savings & Investment products within a Self Invested Personal Pension, something we find many clients are unaware they can do. The current return on an NS&I guaranteed growth bond is 4%, which may well increase to 4.25% after the rate rise today. The return is still well below inflation, but with volatile markets and worry over the banking sector, the option of a guaranteed return and a £1m capital guarantee provided by NS&I will look tempting for some retirees."
Rohit Kohli, director at The Mortgage Stop: "Given the inflation numbers this week, this hike wasn't surprising. Most lenders seemed to have priced in this increase already over the past few days, however we'll now watch and see what happens in the markets and in particular the swap rates. This rate hike is likely to slow the housing market recovery, which had picked up in recent weeks but the positive signs are that this could be the peak of the base rate cycle. Confidence is now the watchword. What happens next will be down to how confident the markets are of the plan and then in turn how this confidence will affect lenders' willingness to lend. If inflation does start to tumble in the coming months then it could line up for interest rate reductions in early 2024 and it would be surprising to see anything before then."
Jamie Lennox, director at Dimora Mortgages: "The hope of the base rate not increasing was quashed as soon as the data landed yesterday around inflation. The positive, though, is that many lenders have already factored this increase into their current rates and so we are unlikely to see any dramatic changes to the pricing of fixed rate mortgages."