Bank of England announces further 0.5% base rate hike – finance experts react

by | Feb 2, 2023

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Up up and away! For the tenth consecutive month, the Bank of England has announced that it’s Monetary Policy Committee (MPC) has decided to hike UK base rate – voting 7/2 for a 0.5% hike. It’s all part of the Bank’s quest to bring inflation closer to its 2% target. Today’s hike puts UK rates at the highest level since the Autumn of 2008. Doubtless, the new 4% base rate will put even more pressure on businesses and consumers who are already struggling to cope with the cost of living crisis.

Experts had largely been expecting the Bank of England to announce a 0.5% hike in base rate today – plus the accompanying quarterly report is also likely to attract attention.

But does this all mean for the world of advice? Investment experts and financial advice professionals have been sharing their reactions to the Bank of England announcement as follows:

 
 

Jonny Black, strategic director, Adviser, abrdn, said:This latest interest rate hike will put further pressure on clients’ budgets, particularly those with debt.

“Advisers need to be ready to help those who are facing higher monthly costs. This could mean decreasing the amount they regularly save, or helping review investment strategies to identify where clients can generate extra income.

“Looking ahead, there are suggestions that interest rates will rise even more this year to 4.5%.

 

“However, this is a fast-moving environment, with little certainty. One thing’s for sure – when it comes to their money, clients will value advisers’ help in maintaining a long-term view, and avoiding any short-sighted reactions that may leave them worse-off.”

Andrew Gething, managing director of MorganAsh said: “There are solid indications that inflationary pressures are reducing, so there is a fair chance this increase will not need to be repeated.

“While it is painful for mortgage borrowers, we need to put in perspective the very low rates the mortgage market has enjoyed were unsustainable, and hoping they will return to such low rates is unrealistic.” 

 

“With every successive rate rise, consumer vulnerability becomes an even bigger factor. The heavy burden of higher mortgage payments will stretch borrowers and force many to make difficult compromises, particularly when it comes to protection and insurance. With Consumer Duty just months away, the FCA has rightly identified a significant shortcoming in preparation by firms to measure vulnerability and monitor customer outcomes.

“As more consumers potentially display vulnerable characteristics, firms must place greater emphasis on their monitoring and data strategy. Not only is it essential in protecting customers and ensuring fair value but delivering good outcomes as required by Consumer Duty. All the above have been identified as key areas of focus for firms by the FCA.

“Recent bad press on the treatment of vulnerable consumers by the energy sector should be taken as a warning that pressure may well come from the consumer as well as the regulator.”

 

Ed Hutchings, Head of Rates at Aviva Investors:

“The Bank of England delivered a 0.50% hike in line with market expectations. However, just like the December meeting, there was a split of votes once again, with some members voting for no hike at all. It’s clear there is still much uncertainty amongst MPC members. With the Minutes stating the BoE expects a shorter and shallower recession, and that inflation risks are ‘skewed significantly to the upside’, gilt yields should head higher but not to a large degree given the inflation forecast. After its recent bullish run of late, Sterling may well begin to struggle in the near term, and with the sizeable amount of gilt issuance to come, plus on-going quantitative tightening, 2023 could also be somewhat more challenging for the UK gilt market”

Kieran Mistry, Senior Business Development Manager, Standard Life, part of Phoenix Group said,

 

With the latest rate rise from the Bank of England largely anticipated, we expect this increase will already have been priced into schemes’ plans and shouldn’t significantly impact the much-improved funding position many have found themselves in.

For Trustees of those fortunate schemes, the focus will be on capitalising on improved funding levels, setting this year up to be a record for the pension risk transfer market, with volumes predicted to top £40bn. Even before adjusting for interest rates, this could make volumes of buy-ins and buy-outs in 2023 the highest annual total to date. Many Trustees will be turning their attention to scheme preparation and reviewing asset strategies for buy-out readiness as priorities ahead of derisking activity.”

John Glencross, CEO and Co-Founder of Calculus said:

 

“The UK has shown remarkable resilience despite significant uncertainty caused by rising interest rates, supply chain issues, increases in wages and a worsening cost-of-living crisis. Demand for growth capital remains at unprecedented levels and there is now a real opportunity to provide meaningful support to a new generation of UK companies driving the digital revolution forward, improving healthcare and creating jobs and opportunities throughout the country.

“Knowledge intensive companies within technology and healthcare – two of the UK’s fastest growing sectors – operate in an exciting investment landscape due to the UK’s strong presence of research universities, robust Government support, and thriving M&A market. The UK’s technology sector leads the European market, having raised double the amount of VC funding of any other country in 2022. Meanwhile, the UK healthcare sector has, in recent years, been a world leader in fighting pandemics and advancing patient care.

“Calculus, which established the first approved EIS fund 24 years ago, launched a Knowledge Intensive Enterprise Investment Scheme (EIS) Fund in October to provide investors with the opportunity to not only benefit from the diversified, strong performing and tax efficient nature of its products, but to also support innovative UK companies with a societal purpose and impact with at least 80% of the fund’s capital invested into businesses carrying out research and development to create new intellectual property.”

Sjaene Higgins, mortgage operations manager at the Wesleyan Group, said: “Interest rates are now at their highest level since 2008. Today’s rate hike will continue to pile pressure on mortgage payments.

“Markets expect the Bank rate to level off at around 4.5% later this year. This is good news, but it still signals higher costs on the horizon. And we’re not expecting a return to anything like the record lows we’ve seen over the past decade. Rates of 3% to 4% will probably be our ‘new normal’ for some time to come.

“The big thing everyone’s wrestling with is timing. Those with fixed rate deals expiring soon will be wondering whether it will pay to re-mortgage now. Those looking to buy a property will be watching mortgage rates rise, just as house prices are forecast to take a plunge.

careful balancing act between high inflation and a potential economic slowdown. It is important that businesses are not hamstrung by a lack of direction and have as much foresight to plan for the year ahead.

Peak interest rates for the year remain unclear, creating a challenging environment for investors and financial advisors. Today’s decision underscores the importance of alternative investment opportunities available in the private markets and venture capital—sectors providing long-term growth and unparalleled tax reliefs via Government-backed mechanisms like the Enterprise Investment Scheme.

Commenting on the BoE’s interest rate hike Andrew Aldridge, Partner at Deepbridge Capital, said: Today’s interest rate hike to 4% reflects the uncertainty plaguing fiscal and monetary policy in the UK with the Bank of England navigating a careful balancing act between high inflation and a potential economic slowdown. It is important that businesses are not hamstrung by a lack of direction and have as much foresight to plan for the year ahead.

Peak interest rates for the year remain unclear, creating a challenging environment for investors and financial advisors. Today’s decision underscores the importance of alternative investment opportunities available in the private markets and venture capital—sectors providing long-term growth and unparalleled tax reliefs via Government-backed mechanisms like the Enterprise Investment Scheme.

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