Should the Bank of England raise rates this week? - Intermediaries respond

The Bank of England is expected to raise interest rates again this week to contain 30-year high inflation.

Related topics:  Finance News,  Mortgages
Rozi Jones
31st January 2022
BoE Bank of England
"The Bank of England's mandate is to keep inflation at 2% so with inflation now significantly higher it has no choice but to raise rates this week."

Rhizome Media asked 10 brokers and intermediaries whether now is the right time to do so.

Ross Boyd, CEO of mortgage switching platform, Dashly: "The Bank of England's mandate is to keep inflation at 2% so with inflation now significantly higher it has no choice but to raise rates this week. It has held back from raising Bank Rate so far due to the fragile Covid economy and sentiment but inflation is now wildly out of control and the dangers it poses to the economy are immense. The vast majority of mortgage holders are on fixed rates anyway so will be protected from the full impact of a rate rise. If the Bank doesn't get a grip on inflation soon, the entire UK economy could unravel."

Stuart Powell, managing director of Plymouth-based Ocean Mortgages: "The Bank of England is in a near impossible position and whatever it decides will cause economic pain. Financially, 2022 will prove to be the worst year ever for millions as the cost of living crisis, rising energy and fuel bills, the National Insurance increase and higher borrowing costs combine with brutal force. The pandemic may be slowly dissipating but the financial effects of it will be felt for years to come."

Marcus Wright, MD of Bolton Business Finance: "Even with an interest rate rise to 0.5%, this would still be lower than before the pandemic. With inflation at a 30-year high, I think another small rise is both expected and fully justified. Inflation poses a real risk to our post-Covid economic recovery and cannot be ignored any more."

Daniel Wiltshire at Bradford-on-Avon-based Wiltshire Wealth: "The Bank of England is caught between a rock and a hard place, namely soaring inflation on the one hand and a fragile economy on the other. Rising interest rates will be painful for many households and small businesses in the short term, but runaway inflation would be far worse. The Monetary Policy Committee also has its own credibility to consider. The stakes couldn't be higher."

Andrew Montlake, managing director of London-based independent mortgage broker, Coreco: "Another small increase in rates by the Bank of England is almost certain and will not affect the majority of existing mortgage borrowers who have long since run to the sanctuary of fixed rates. That said, a rate rise will affect future potential borrowers and is yet another slap across the face to those already facing higher energy costs, food prices and an ill-judged refusal by the Government to hold back on a National Insurance rise. The problem is that another small increase is unlikely to temper inflationary pressures without a major change, and while rates do need to get back to some semblance of normality sooner rather than later, the public just aren't ready for this right now."

Adrian Kidd, chartered wealth manager at Aylesbury-based EQ Financial Planning: "The Bank of England should raise rates and it will. Central banks have been slow off the mark due to Covid but some upward motion to rates is long overdue. Care is needed, however, as we saw last week how easy it is to spook markets with significant volatility in the US. Central banks find themselves in a pickle as moving too aggressively and too quickly could mean a recession ensues. The balancing act is immense. A lot of mortgage holders are on fixed rates so this shouldn't have too much of an impact right now. But rates being 1% higher in a year's time could mean some future pain for borrowers, especially if they have already stretched themselves to the limit."

Rob Peters, director of Altrincham-based Simple Fast Mortgage: "A Bank of England interest rate hike seems the better of two evils. It's a gamble between a higher cost of loans and mortgages, or a higher cost of everything else. The Monetary Policy Committee will be rolling the dice that a rise in interest rates will derail the runaway inflationary train that we're currently all passengers on. In theory, a higher cost of borrowing will curb spending, and thus the demand and price of goods will fall, but there is no guarantee it will work. Savers will likely be better off as it will become slightly more attractive to have money in the bank. Hardest hit will be the low earners who carry a large amount of unsecured debt, such as credit cards and loans where interest rates tend to be higher, and often variable. These people will find their finances being battered from all angles making it very difficult to make ends meet."

Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub: "Higher interest rates are long overdue in my opinion. The Bank of England must prevent runaway inflation at all costs. The CPI figure rose to 5.4% last month, but most economists agree the CPI doesn't truly reflect the inflation rate for the average person. The more accurate RPI figure was 7.5%. If inflation rises much higher, the impact for people on low incomes will be catastrophic, and certainly far worse than the effects of a small hike in interest rates."

Aaron Strutt, product and communications director at Trinity Financial: "The Bank of England base rate has to be raised to a more normal level at some point, but at the moment when so many other costs are rising another hike will not be a popular decision. With the National Insurance increase likely to go ahead, energy price rises and the cost of living generally getting more expensive it makes sense for borrowers to ensure they are getting the best deals on their mortgages, credit cards and loans. Borrowers can often adjust their outgoings to make them more affordable if they are worried about their finances."

Lewis Shaw, founder of Mansfield-based Shaw Financial Services: "The Bank of England has to get a grip on raging inflation but will small rate rises achieve that goal? Probably not. Unfortunately, we’ve got a Government so preoccupied with alleged lockdown nonsense they’re asleep at the wheel of the economy, and the cliff edge that many of us have been warning about for 18 months is getting dangerously close."

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