The Bank of England had widely been expected to bump up its base rate this week, but the interest rate rise has been held off while the country mourns.
One of the major business decisions that has been delayed while the country – and many parts of the world – mourn the passing of Queen Elizabeth is the upping of the Bank of England base rate.
This gives banks and lenders a further week at the current rate of 1.75%, having already been nudged upwards from its historic low of 0.1% several times this year. Many had speculated that a new rate of 2.25% was on the cards.
The Monetary Policy Committee will instead announce an interest rate rise on 22nd September “in light of the period of national mourning”. While the new potential rate would be the highest seen since 2008, rates tended to fluctuate to much higher levels prior to the financial crisis 14 years ago.
The delay is an unusual one, as the meetings with the committee are normally held on a strictly planned schedule, put in place at least a year in advance and only deviated from in an emergency or extreme circumstances.
Where we’re at now
The last interest rate rise in August saw the base rate lifted by 0.5 percentage points to 1.75%, in what was the biggest single hike in 27 years. It was the sixth successive interest rate rise, and came alongside warnings of a recession later this year.
The action was taken in part as a result of soaring prices, which the Bank blamed on Russia’s invasion of Ukraine. Inflation had been expected to hit 13.3% later this year, although Prime Minister Liz Truss‘s latest energy cost package is tipped to curb this.
What the majority of property owners are most keen on finding out is how this could affect their mortgage borrowing costs, with one ball park figure of an additional £50 per month in payments being put out as an average estimate.
The interest rate rise is likely to result in many borrowers reassessing their mortgages right now, and trying to secure the best fixed rates available to protect against future increases by lenders.
One positive of a rising base rate is that it could help the pound, which is at one of its lowest rates against the dollar right now and some speculators fear it could fall in line with the US dollar.
Where will interest rate rise end?
It is impossible to know how high the Bank of England will move its base rate as the country continues to grapple with inflation and the cost of living crisis. However, the new prime minister’s energy plan, revealed last week, could make a difference.
According to Andrew Bailey, the Bank of England’s governor, Liz Truss’s energy plan, which will cap the typical household energy bill at £2,500 a year until 2024, will be “taken into account” when the Monetary Policy Committee comes up with its next move.
Referring to speculation that the UK is heading towards recession, Bailey added: “The person going to put the UK in recession is Vladimir Putin, not the MPC [Monetary Policy Committee].”
However, the prime minister pointed the finger at the Bank of England during her campaign, saying it had not reacted quickly enough to rising prices and in protecting vulnerable households.
As the cost of living saga rages on, the new Chancellor of the Exchequer, Kwasi Kwarteng, has said that he will meet with governor Andrew Bailey twice a week from now on in a bid to tackle the issues facing the UK.
In terms of mortgage rates, lenders are expected to continue to inch their rates up, although there remains plenty of competition in the market. The general consensus is for those whose rates are coming to an end, or those on variable rates, to fix now to guard against a future interest rate rise.
