Bank of England

BoE raises interest rates to 0.75% — industry reacts

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 8-1 to increase the bank rate by 0.25 percentage points to 0.75%.

This is the third consecutive increase since the bank cut the rate to 0.1% two years ago as a result of the coronavirus pandemic.

According to the MPC, Russia’s invasion of Ukraine has led to further large increases in energy and other commodity prices, such as food. 

It is also likely to exacerbate global supply chain disruptions and has significantly amplified the uncertainty around the economic outlook. 

Global inflationary pressures are expected to strengthen considerably over coming months, while growth in economies that are net energy importers, including the UK, is likely to slow.

UK inflation is forecast to rise further in coming months to around 8% in Q2 2022, and possibly even higher later this year.

Industry reacts to interest rate rise

Yet again, the majority of industry experts were not surprised by the Bank of England’s decision to hike the interest rate.

“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,” said Peter Lowman, chief investment officer at wealth management firm, Investment Quorum.

“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."

However, while this was anticipated, many experts have pointed out that the decision will put significant pressure on consumers.

Adrian Anderson, director at Anderson Harris, commented: “It’s likely that mortgage lenders will continue to increase fixed rates, which will be a shock to many households at a time when bills are increasing.  

“We’re in a very different place now to where we were only six months ago when fixed mortgage rates were the lowest on record. 

“The Bank of England is attempting to calm the rise in the cost of living and expects inflation to 'fall back materially' once prices stop rising — however, we should expect rates to continue to rise in the meantime.” 

Alastair Hoyne, managing director at Finanze, stated: "The Bank of England had to raise interest rates, even though it will apply even more pressure on households which 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 MPC knows it — the Bank of England is in an almost impossible position."

Nicky Stevenson, managing director at national estate agent group Fine & Country, added: “Lenders won’t be slow in passing on this interest rate hike to customers, and there will be a certain level of frustration among buyers given the challenges that many already face.

“The current cost of living, squeezed together with looming tax rises, mean that affordability pressures have never been greater. 

“And because the supply of housing stock is currently at rock bottom, the Bank of England’s decision is unlikely to make a dent on house price growth, which continues to break all records.

“Looking ahead, households can insulate themselves against future interest rate hikes by agreeing cheap mortgage deals now, but borrowers need to act fast if they want to secure cheaper lending because the deals currently on offer are changing at the speed of light.”

Vikki Jefferies, proposition director at PRIMIS, stated: “As the cost-of-living crisis continues and economic conditions remain volatile, lenders are beginning to act more cautiously in order to mitigate the risk of borrower defaults, namely by reducing the number of mortgage products they offer.

“Brokers will now need to be more proactive than ever to secure the best outcomes for their customers — this is particularly the case for those who have complex financial situations; brokers should act quickly to help these customers find the most appropriate and affordable products that fit their current circumstances.”

However, some experts remain optimistic about the housing market’s prospects in the near future.

Mark Harris, chief executive at SPF Private Clients, said: “The purchase market is still active, although the froth has gone.

“Activity in the remortgage market is picking up and is set to continue as borrowers look to secure rates before there are further increases; rates can be booked up to six months before they are required, and we are getting a lot of interest from motivated borrowers in doing this.

“Even with this latest rate rise, we remain in an extremely low interest rate cycle, and expect that to be the case indefinitely.”

Nathan Emerson, CEO at Propertymark, stated: “The housing market has emerged from the pandemic in a strong enough position to absorb much of the impact of the economic shocks that have been predicted for some time now.

“It’s important to remember it remains relatively cheap to borrow money, and we expect that to continue to feed the appetite there is for property as a good, long-term investment.”

Meanwhile, Matt Staton, head of lettings at Berkshire Hathaway HomeServices London Kay & Co, predicts that the increased interest rates may result in a tilt towards rentals, as some aspiring homeowners opt for longer tenancies instead of purchasing homes.

“With rising energy bills front of mind, renters are also likely to be more considered about their choice of property, which could see a surge in demand for more energy-efficient homes and lower bills,” he explained.

“As we navigate new economic headwinds, the real estate sector will need to brace itself for a choppy period but, even so, we expect the market to remain resilient and buoyant in the months ahead.”

Douglas Grant, CEO at Manx Financial Group, highlighted that the bank rate increase will likely cause issues for many UK SMEs who are still struggling.

“The rate hike will disproportionately affect small businesses reliant on funding in their early stages of growth, exacerbating the UK SME debt burden and zombie status of weak businesses that continue to service their debt piles, with many falling off a loan default cliff. 

“Its high time we address the question: how is this debt ever going to be paid back, and is it in the interest of the UK economy to continue to support all SMEs?”

Douglas predicts that, due to the Bank of England rate increase, demand for working capital is set to soar to unprecedented levels as more businesses require liquidity provisions to counteract supply chain issues, increasing wage inflation, and additional pandemic-induced headwinds.

“Resilient SMEs would be well advised to take stock of their current capital structure and, if appropriate, access fixed-term, fixed-rate loans to prevent additional exposure to an increasingly volatile lending market,” he commented.

“UK business can no longer rely on government support schemes to keep their companies afloat and, while this will be very painful for many, it will also create an even more resilient and healthy workforce for the future.”

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