Bank of England hikes UK base rate to 4.5% – highest level since 2008: reaction from finance experts

by | May 11, 2023

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Today’s announcement from the Bank of England that UK base rates are to increase by 0.25% from the previous rate of 4.25% to a new rate of 4.5%, must hardly come as a surprise. Most economists and analysts have been predicting that the Bank would hike again given the current economic conditions. Today’s move signals the twelfth consecutive time since December 2021 that the Bank’s Monetary Policy Committee (MPC) has hiked bank rate to the highest level since 2008, voting by a margin of 7-2 in favour of the rise. It focuses on the Bank’s aim of reducing inflation back towards it’s 2% target, however it’s the Bank’s latest economic forecast which will be most under scrutiny from investment and finance experts.

Investment and finance experts have been sharing their reaction to today’s base rate news from the Bank of England with IFA Magazine as follows:

Rob Clarry, Investment Strategist at wealth manager Evelyn Partners, comments: “The Bank of England followed the Federal Reserve and the European Central Bank in raising its base interest rate by 25 bps. While it appears the Fed is pausing its interest rate hiking cycle, the BoE and ECB could still have some work to do. Much will depend on the incoming data.

At 10.1% in March, UK inflation remains stubbornly high. In contrast, US and Eurozone CPI rose 4.9% and 7%, respectively in April. This divergence has been driven by two main factors. First, like the rest of Europe, the UK has experienced a major energy price shock since the Russian invasion of Ukraine.


Second, the UK has experienced far greater labour shortages than the rest of Europe, similar to what we have seen in the US. Many young European workers have left the UK after Brexit and older workers are leaving the labour force due to long-term sickness. This has placed upward pressure on wages and inflation.

As a result, markets have repriced their expectations of the peak in the UK base rate over the last month – they now expect a peak of 5% instead of 4.5%. But much will depend on the data over the next couple of quarters.

We expect to see UK inflation start to ease as the base effects turn more favourable and the impact of higher rates is felt by the real economy. In its latest forecasts, the Bank of England now expects inflation to fall to around 8% for Q2 and 5% by Q4. They expect to meet their 2% target by the end of 2024.


On the plus side, the Bank now thinks the UK will avoid recession in 2023. It revised its 2023 GDP forecast up from -0.5% to 0.25%.

According to Matthew Cady, Investment Strategist at Brooks Macdonald, markets could be in for a bumpy ride after this latest hike as he comments:

“Today’s 0.25% raise by the Bank of England represents a new interest rate high since 2008 and is their 12th consecutive increase. The Bank has been increasing rates at a remarkably fast pace, with a total hike of 440 basis points in only 18 months – the fastest set of hikes in decades.


“With the decision split 7-2 in favour of a hike, the language from the Bank appears to suggest bias for another hike, given they see risks around their inflation forecast as “skewed significantly to the upside”. The hawks will be quick to point out that inflation is still too high, with the latest Consumer Prices annual rate of inflation running at five times the Bank’s 2% target, the doves at the Bank will no doubt be urging patience, emphasising that interest rates work with a lag on the real economy, and that time is needed for past hikes to do their job.

“The Bank has also updated its latest quarterly economic projections, anticipating both higher inflation and economic growth. This inflation-economic growth trade-off mirrors the dilemma many central banks globally have faced recently. A stronger economic outlook is certainly good news, but it poses the risk of more persistent inflation pressures. Markets could be in for a bumpy ride.”

Kirsty Watson, chief operating officer, adviser at abrdn, said: This is now the twelfth consecutive rise in interest rates. With inflation slowing, and expected to keep doing so throughout this year, clients will be wondering when we’ll start to see interest rates hold steady or drop back, too.


“This is a perfect opportunity for advisers to have a broad conversation with clients about what the base rate is, how it works, and how it could change in the months to come. It’s also another chance to stress the importance of maintaining a long-term view when it comes to their savings and investment strategies.

“With a few exceptions, a single change in the base rate won’t immediately make a big difference for clients’ circumstances. But their gradual impact, and the direction of travel, matters. Advisers will be critical to helping ensure clients are positioned well in, and informed on, the big picture – and not make snap changes to strategy that might not be in their best interests, long-term.”

Marc O’Sullivan, Head of Investments at Wesleyan, said: “Rising interest rates have made cash seem a more attractive option for savers. But people should remember it’s not always the best option for long-term saving plans such as retirement.


“Standard bank accounts still aren’t paying interest anywhere near the current rate of inflation. The best easy-access deals are offering less than 4%, compared to inflation of 10.1%. Interest rates are likely to start falling later this year too, when inflation starts to cool, so now is an ideal time to carefully consider your financial goals and how best to achieve them.

“Investing your money gives the opportunity to increase the value of your cash over time. Investment markets can be volatile, with sharp rises and falls; however, there are options – such as with profits ISAs – that provide customers with a ‘smoothed’ investment return.”

Ed Hutchings, Head of Rates at Aviva Investors comments:”As expected, the Bank of England hiked interest rates a further 0.25% to make it 12 hikes in a row. Once again, the split vote on the decision shows that some MPC members believe taking the rate from 0.10% to 4.50% in under 18 months without a pause along the way is too much. Further to this, with the market still priced for at least one more hike of 0.25%, it could still be some time before we do actually see a pause.  With the upgrading of growth forecasts, it’s likely a recession will be avoided in the near-term. However, the more the BoE hikes, the larger and quicker cuts may be when they come. This should see Sterling weakness and gilt yields supported over the medium term.”


Wes Wilks, of Net-Worth NTWRK comments:

“The Bank of England’s decision to raise rates to 4.5% was widely expected, as it was all about maintaining credibility in the current inflationary climate. The majority vote of 7-2 to hike rates is surprising, however, and indicates that we may not be as close to the end of this rate raising cycle as hoped. This is a serious blow for borrowers and businesses alike. The fear is that in the Bank’s unwavering pursuit of a 2% inflation target, the lagged effect of aggressive rate hikes is yet to enter the system. All eyes are now on the next inflation numbers and the ‘sharp decline’ the Bank of England expects to materialise, or more rate hikes are almost certainly on the cards. Then things get serious.

Andrew Gething, managing director of MorganAsh said: “Although the UK economy is showing its fair share of positive indicators, the stubborn nature of inflation is clearly still too much of a worry for the Bank of England to halt its rate-rising agenda. While many forecasters suggest that we could be getting close to the peak, today’s news demonstrates that a future pause certainly isn’t guaranteed in the current environment.

“While those with fixed-rate mortgages are shielded from this outcome, it will once again be those with either tracker or variable-rate mortgages that take the biggest hit. This may be just a proportion of the market at – around one-and-a-half million households – but we mustn’t forget all those due to come off low fixed-rate products. That’s especially true for those who are now sat on high SVRs, thanks to chain breaks or a prolonged remortgage process.

“With less than 90 days to go until the start of Consumer Duty, identifying and monitoring those vulnerable customers should already be high on the agenda for firms. In truth, financial stresses will form just one part of a much wider scope of vulnerability that firms will be expected to consider. If it’s not already, this will become a fundamental part of the process for firms across financial services, especially as rate rises and other health and lifestyle issues push more borrowers into a vulnerable position.

“In its latest statement released on Wednesday, the FCA confirmed that it will have a sharp focus on both harms and outcomes. Consumers unable to move mortgages may well be one of these cohorts.”

According to Samuel Mather-Holgate, IFA at Mather and Murray Financial “This rise is disastrous for borrowers on tracker mortgages or those due to come off fixed rates and remortgage. It’s a senseless policy from the Bank of England as inflation isn’t staying high due to demand, it’s essential items that have been affected by supply restraints caused by the war in Ukraine. Homeowners will look on with dismay as this act of sadism is inflicted on them with no justification. Thankfully, as inflation falls the Bank should start slashing rates but the damage to the economy and personal finances may have already been done.

Rachel Winter, Partner at Killik & Co, said “Sticky inflation means the Bank of England has once again turned to its weapon of choice in hope of stamping out the inflationary pressures the economy is facing. While the Federal Reserve recently indicated that it was ready to hit the pause button on rate hikes in the US, markets in the UK are currently pricing in a peak of 4.85% in September.

“It is still expected that UK inflation will decline over the summer as lower energy prices start to feed into the data, but for the time being inflation remains well above the Bank of England’s 2% target. Data published yesterday showed that inflation in the US had dropped to 4.9%, but our rate is still above 10% and therefore the central bank has been forced to put rates up again.

“Another interest rate increase will be particularly unpopular with those on variable rate mortgages who’ve faced month after month of increased costs alongside higher bills and day to day costs.

“Whilst this news will be met with mixed reactions, higher rates can dampen the stock market and this could present a good opportunity for investors to bolster their portfolios as share prices remain low relative to last year.” 

Lily Megson, Policy Director at My Pension Expert, said: “Another day, another blow to Britain’s savers. Even as interest rates continue to rise, any potential benefit savers might have experienced but a few years ago will likely be bulldozed by inflation – which has remained in double digits for almost a year.”

“Unsurprisingly, millions of Britons are worried. According to My Pension Expert’s own research from earlier this year, 44% of over-55s currently in work feel the cost-of-living crisis has rendered retirement impossible – a devastating figure, following their decades of hard work and diligent saving.

“In these challenging times, it is critical that Britons are empowered to secure their long-term financial aspirations. And this can only be achieved if they have access to the necessary support. The Government, regulators and the wider financial services sector must take steps to ensure education resources and independent financial advice are readily available. Access to such tools will ensure people can make well-informed financial choices and help them to achieve the retirement they want – and indeed deserve.”

Chieu Cao, CEO of Mintago, said: “Even if today’s interest rate decision does contribute to reducing inflation in the long-term, it’s unlikely that the financial stress that many Britons are grappling with will be going away any time soon. So, it’s more important than ever that people are equipped with the tools they need to navigate what continues to be an incredibly challenging economic climate.

“These tools must be provided by employers, many of whom are not doing enough to support their staff where financial wellbeing is concerned. Indeed, while the rising cost-of-living was the greatest source of stress for 62% of Britons, a staggering 64% of employers do not have initiatives in place that are designed to improve their staff’s financial wellbeing, according to Mintago’s research.

“Employers must take action and engage with their employees about the financial difficulties that they are facing. By providing more targeted financial wellbeing support – such as educational resources, access to financial advisers or an interactive pension contribution dashboard – that suits the unique needs of each employee, businesses can alleviate a great deal of the financial stress that people are facing, ensuring staff can stay on track for a secure financial future.”

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “Today’s quarter-point rise from the Bank of England is another reminder that inflation isn’t coming down fast enough, and households across the UK are feeling the effects. According to ONS data, the prices of food and non-alcoholic drinks are rising at the quickest rate in over 45 years – a factor which could lead to further hikes to the base rate this year.

“One upside for rapid interest rate rises is that consumers and investors should get more interest on their savings. But interest rates for easy-access accounts have often not kept pace with hikes to the base rate, which means that people could be losing out on potential gains on the money held in traditional accounts. For those in a position to put aside a lump sum and allow that pot to grow, it’s vital that savers explore how different savings instruments can support their financial goals. In many cases, fixed-term, fixed-rate bonds can offer much higher interest, while many savers will benefit from looking beyond traditional high street banks.”

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