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Bank of England rate decision: reaction from investment and mortgage experts

Bank of England

Although hardly a surprise move, today’s Bank of England rate decision and minutes of the MPC meeting show that the committee voted 8-1 to increase UK Base Rate to 0.75%. With inflation running at a 30 year high, today’s hike was expected by most analysts and commentators. Here we get the views of advisers and mortgage experts on what the latest interest rate move means for markets as well as clients. 

Peter Lowman, Chief Investment Officer at London-based Investment Quorum: “This rate rise was as good as set in stone. With inflation predicted to move higher over the coming months, intensified by the rise in energy, commodity and food prices, the Bank of England’s hands were tied. While the Bank of England cannot do much about the supply chain conundrum or skyrocketing commodity prices, it does have the ability to raise interest rates and that’s exactly what it’s doing.”

Antonia Medlicott, Finance Editor at the financial comparison website, InvestingReviews.co.uk: “It was an odds-on certainty that the Bank of England would increase rates, as controlling inflation is its primary remit. Expect more rate rises in the months ahead as the inflationary storm grows. In theory, savers should rejoice but in practice inflation is so high that real returns are a pipe dream for anyone holding their money in cash. In recent months, we have seen a significant rise in the number of people researching investing platforms through our website. Savers who would traditionally avoid equities are increasingly turning to the stock market to give their money at least a chance to grow.”

Scott Gallacher, a Chartered Financial Planner at Leicestershire-based independent financial advisers, Rowley Turton: “Increasing interest rates to control inflation is the wrong policy at the wrong time. Current UK inflation is primarily being driven by external international factors such as rising gas and oil prices and Chinese supply issues due to Covid, so trying to dampen domestic demand, and therefore inflation, by increasing interest rates seems naive at best. The cost of living crisis will more than dampen UK consumer demand. And UK consumers don’t need a double whammy of rising mortgage payments and rising bills.”

Dominik Lipnicki, director of Your Mortgage Decisions“There are specific reasons for the current inflation we’re seeing and the Bank of England raising the base rate will do very little to fix the problem. We have all seen huge energy price increases and more are yet to come. Coupled with the upcoming National Insurance hike, this means that many people will struggle and have to choose between heating and eating. By increasing their mortgage payments, this financial strain will only become more severe. We have a very tough year ahead and raising rates now is not the answer.” 

Alastair Hoyne, managing director at Finanze: “The Bank of England had to raise interest rates, even though it will apply even more pressure on households. Households are so leveraged that rate rises, even small ones, have the ability to cripple people financially. They’re hanging over the average household like the Sword of Damocles and the Monetary Policy Committee knows it. The Bank of England is in an almost impossible position.”

Scott Taylor-Barr of Shropshire-based broker, Carl Summers Financial Services“Energy price rises, fuel price rises, tax increases, food price rises, seemingly everything is on the way up. But the issue is that the biggest price increases are on essentials, not things we choose to buy. So is adding to what is widely touted as the biggest decrease in our standard of living for decades by increasing interest rates really that helpful? Inflation isn’t rising because we’re all feeling flush and spending our money on luxuries, it’s rising because the essentials of modern life are all skyrocketing. Increasing people’s mortgage payments isn’t going to bring down the price of petrol.”

Adrian Kidd, chartered wealth manager at Aylesbury-based EQ Financial Planning“This rate rise was always coming but too much tightening will lead to an even worse fate, namely recession. A further squeeze on the consumer just isn’t necessary right now in my view. Central Banks cannot say it out loud but this inflation is good for the debt on their balance sheets.”

Graham Cox, founder of the Bristol-based Self-Employed Mortgage Hub: “As much as it adds to the existing pain, I do think we need to wean the economy off its dependence on ultra-low interest rates. Inflation is running riot and could remain high for a couple of years. It will cause huge damage to the economy if we’re not careful. I think we need to continue slowly raising the base rate and take the medicine now. Or we will be storing up far greater problems for later on.”

Dr Jackie Mulligan, expert on the Government’s High Streets Task Force and founder of the local shopping platform, ShopAppy: “In theory, the Bank of England is doing the right thing by raising interest rates to control inflation, but equally doing it now when so many people and small businesses are already on the breadline and struggling to make ends meet feels like it is out of touch. People’s spending power has already been obliterated and the last thing we need for local high streets is customers and businesses having to deal with higher borrowing costs. For many small high street businesses already crippled with debt from the pandemic, rising interest rates could spell the end.”

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