Bank of England hikes interest rates by 0.5% despite looming recession: reaction

by | Dec 15, 2022

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As had been widely anticipated, the Bank of England’s Monetary Policy Committee has today announced that it has decided to hike UK base rate by a further 0.5% to 3.5% – the highest level since October 2008. However, 2 of the 9 MPC committee members believed that the rate should remain at 3%. This move is all in line with their quest to try and bring down inflation closer to the 2% target which the Bank aims to achieve. But with recession looming and the economy and households struggling with the cost of living crisis, today’s interest rate hike is likely to add more pressure to already hard-pressed families and businesses.

Below, advisers, investment, and property and mortgage experts share their reaction to today’s interest rate hike:

Marcus Brookes, chief investment officer at Quilter Investors: comments: “Despite it being widely acknowledged that the UK is in recession, the Bank of England has today delivered another interest rate rise as it seeks to tame the inflationary beast. For now the 75bps rise in November looks to have been a one off as today brought an additional 50bps to the bank’s rate. The good news for households and the economy is that it looks like inflation may have peaked, if this week’s stats are anything to judge by. This does not mean the end of the rate hikes though, and just like the Federal Reserve over in America, the BoE will keep hiking until it is sure inflation is on a sustained downward trajectory.

“However, with the political shenanigans seemingly over for now and the market a lot more stable than it was at the last decision, investors will start looking to the future and signs of a pause in the hiking cycle and potentially even look at when rates might even be cut in order to stimulate economic growth. The robust jobs market is the only thing keeping the UK from entering a truly stagflationary environment, but how long this will hold remains to be seen. 2023 has not been primed as a bounce back year for the economy, so the BoE may need to act sooner than it may like.

“It is a tough balancing act, and the BoE will be hoping to learn a lot from the US given they appear a few months ahead of the UK in this battle against inflation.”


Gareth Davies, director at Southampton-based broker, South Coast Mortgage Services:“For borrowers, my overriding message is: ‘Don’t Panic’. Lenders have long since priced this rate rise, and also future base rate increases, into their current pricing models. Tracker products will naturally now creep up, but we haven’t seen any of the high street lenders re-pricing their fixed deals for the worse this week. This is usually common practice a day or two before a base rate announcement.”

Samuel Mather-Holgate of Swindon-based advisory firm, Mather & Murray Financial:“This was so predictable, yet so disappointing. Millions of homeowners with mortgages who are already suffering with the cost of living will feel betrayed by the central bank for this. You don’t cure an illness with the same poison. Every economist recognises that the economy is in free fall and that inflation is widely imported and will fall out of the figures in May. The Bank of England does not need to heap more pain and misery on society with rate increases that won’t deal with the problem. The Government needs to step in here and widen the Bank of England’s mandate to allow it more flexibility and compassion in its decision-making.”

Jonny Black, strategic director at abrdn said: “Higher interest rates will be shaking up mortgages and markets. Clients will want to know what it means for them.


On top of what’s usually the costliest time of year, the Bank’s decision may increase their outgoings and force them to adjust their income requirements to match. Helping them adjust their plans to do this sustainably will be hugely valued – particularly for those relying on savings or investments for income.

“These are choppy economic waters. Every bit of support advisers can give in helping clients chart a smooth course forward will pay dividends in terms of both clients’ outcomes, and the long-term relationships.”

Justin Moy, founder at Chelmsford-based mortgage broker, EHF Mortgages: “The increase to 3.5% was not unexpected and should have been reflected in overall mortgage pricing over the past few weeks. What is interesting is that some members of the MPC suggested not increasing rates this month. Is that a sign that we may be closer to the top than before? It’s also interesting to see HSBC forecast a lower Base Rate peak of 3.75%, much less than the 6%+ we were looking at in October.”


Lewis Shaw, founder of Teesside-based mortgage broker, Riverside Mortgages: “We’ve never had a scenario where the Monetary Policy Committee continually raises the bank rate every meeting, yet here we are. Anyone on a base rate tracker will be written to by their current lender explaining the change in the monthly payments, which will take effect from next month. Anyone still on a fixed rate doesn’t need to worry as their fixed product currently protects them. Mortgage holders sat on standard variable rates could notice a change; however, that is down to each lender. The bad news is if the economy carries on as predicted in the November Monetary Policy Report projections, expect to see more base rate hikes to return inflation to 2%. There’s no way to dress it up: we’re in a bit of a pickle.”

Edward Hutchings, Head of Rates at Aviva Investors said: The Bank of England duly delivered on financial markets expectations of a 0.50% hike. With a 3-way split vote, it seems there is still much uncertainty amongst MPC members. However, the Minutes state that the BoE do expect a recession for a ‘prolonged period’! After its recent bullish run, Sterling strength could be somewhat more questionable from here and with further Quantitative Tightening to come plus a staggering amount of Gilt issuance, 2023 will continue to be volatile for the UK Gilt market”

Joshua Ellard, Head of Specialist Finance & Research at London-based broker, Finanze: “The Bank of England’s latest rate increase will impact millions of households across the country. Standard variable rates and 2- and 5-year fixed rates are all likely to increase. As rates increase, the amount people can borrow to purchase a property decreases, which will put downward pressure on house prices. While this decision may concern those borrowers who are on variable rate mortgages, the effect on fixed rate products may not be so drastic. Some lenders have already priced future rate increases into their current products. We are seeing current 5-year fixed mortgages between 5%-6%. Whilst we may see some increase, I do not expect the full burden to fall on borrowers. However, those on a fixed rate mortgage that expires next year will see an average increase of £3,000 per annum.


Adrian Kidd, chartered wealth manager at Aylesbury-based EQ Financial Planning: “What this decision means is that higher mortgage rates are here to stay but, on a more positive note, that saving rates will hopefully edge higher. But even then inflation is so high that returns on cash are wiped out. We need to see inflation fall quicker than it is to change the mood music at Threadneedle Street.”

George Lagarias, Chief Economist at Mazars comments: “The BoE’s decision was fully expected by financial markets. The question facing the UK central bank is still difficult. Where the US may eventually begin to pause rate hikes, the UK may well find itself with higher and more protracted inflation, as it seeks to reconfigure its labour market. Mortgage holders and the UK housing market may be just at the start of a difficult road.”

Ashley Thomas, director of London-based mortgage broker, Magni Finance: “No surprises here, this has been expected for the past month. Mortgage lenders are continuing to reduce rates, with the latest announcement sent from a lender this morning.”


Scott Taylor-Barr, financial adviser at Shropshire-based Carl Summers Financial Services“With many commentators expecting a full 1% rise just a few weeks ago, 0.5% feels like we dodged a bullet. There is potential for further rises in 2023 depending on how inflation moves. If we see further reductions in inflation then it reduces the argument for additional rate increases, but if it stubbornly remains slow to come down, then the Bank will need to act again. The key thing to remember is that the economy is the proverbial oil tanker and the Bank knows that changes to interest rates can take 12-18 months to filter through and impact inflation figures.”

Sarah Pennells, Consumer Finance Specialist at Royal London, says: “The Bank of England’s decision to raise interest rates to 3.5% will mean higher costs for millions of borrowers – whether that’s homeowners with variable rate mortgages or credit-card holders, whose provider decides to hike the interest rate.

“Earlier this week, the central bank warned that four million households, which includes those coming off fixed-rate deals as well as variable rate mortgage holders, face higher mortgage payments in 2023. Increased living costs and higher mortgage payments have already made it harder for people to afford debt repayments.


“A rise in mortgage rates of 0.5% will cost someone with a £200,000 variable rate repayment mortgage an extra £53 a month, but this increase comes on top of the £260 hike in monthly payments they’ll have experienced since last December, when the base rate rose to 0.25%.

“The only bit of good news is for savers, as interest rates on savings accounts have been rising over the last year. The best buy easy access accounts now pay as much as 2.9% and NS&I will be increasing its prize fund rate on Premium Bonds in January. However, with inflation currently three times this level, people who keep their money in cash – especially over the long term – will find it loses value.”

Les Cameron, savings expert at M&G Wealth said: “With many people feeling the financial pinch, what’s important is how today’s interest rate hike impacts savings and borrowing rates.

“Even with an increase in rates, when coupled with sky-high inflation, anyone with cash or near cash savings will see their money being eroded in real terms. And this is likely to be felt more acutely by pensioners who are likely spend a higher proportion of their cash savings on energy bills.

“At times like these, and particularly during the festive season, there can be a tendency to prioritise shorter-term spending needs over longer-term financial planning. However, it’s important to think very carefully about stopping any pension contributions as your employer may be matching these contributions which is a valuable benefit to give up and rebuilding your pension fund to where you could have been, if you had not stopped, could be hard. 

“Likewise, stopping any protection policies needs very careful consideration. That protection is there for a very good reason which has not changed with interest rates rising, and there is no guarantee that you’d get the same terms if you looked to restart any cover.”

Andrew Gething, managing director of MorganAsh said: “Today’s decision by the MPC confirmed what many in financial services expected and had in fact already priced into fixed rates. It also hints that last month’s efforts to front-load rates with an aggressive rise of 0.75% may have been the exception rather than the new rule, especially as the base rate is predicted to peak below expectations.

“Recent indications that inflation increase is slowing is encouraging as we should see a drop in inflation quite quickly and hence release pressure to increase rates.

“Nonetheless, this further increase takes rates to their highest point in 14 years, once again driving up the cost of borrowing for stretched consumers. It also puts additional pressure on those with tracker and SVR mortgages.

“It’s situations like this where the new Consumer Duty regulation has been introduced to protect the most vulnerable. As the Bank of England takes difficult measures to bring inflation down, providers, brokers and advisers must identify those customers with vulnerable characteristics who will be most susceptible to harm. This is especially true with changing affordability, harsher criteria and tougher stress tests.

“Implementing a consistent method to assess vulnerability must become a priority for financial services firms, especially as more consumers potentially fall into this category. Not only is it essential in protecting customers and delivering good outcomes but meeting the requirements of Consumer Duty.”

Richard Pike, chief sales and marketing officer at Phoebus Software, says “Another rate rise from the Bank of England today was not unexpected.  However, global interest rates are rising, so it’s a strategy that is widely believed to be the best way to curb inflation. There were question marks though, with many asking whether the speed at which rates are being increased may cause further problems for the economy.  Nevertheless, we saw the first signs this week with inflation falling very slightly, that the plan may be starting to work.

“Although mortgage rates have been coming down we are now seeing some high street banks increasing their rates.  Those on interest only or with deals coming to an end will be looking into 2023 and wondering how much their new mortgages are going to be costing them.  Advisers and lenders will be looking closely at their books to not only assess where the opportunities lie, but where the vulnerabilities may be.  This will be made that much easier with the right systems in place and a clear plan of action should things change quickly.”

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