Bank of England ‘holds fire’ on base rate rise
UK interest rates will remain at their historic low of 0.1% for at least another month, the Bank of England’s monetary policy committee has decided.
The committee voted by 7-2 to maintain the existing base rate, despite considerable speculation that it would back an increase. Two members backed an immediate increase to 0.25%.
However, the committee is widely expected to back an increase – the first since 2018 – at its next meeting in December.
Kevin Brown, savings specialist at Scottish Friendly, said: “We expected today to be the first of a series of hikes in the Bank of England base rate over the next 12 months.
“However, while the Bank has confirmed that interest rates will have to rise modestly it’s taken the decision to hold fire for the time being.
“It now predicts inflation will rise as high as 5% by the spring which is why action will eventually need to be taken to quell the rising cost of living. We expect the Bank to make incremental hikes rather than introducing a swift, sharp increase.
“Nonetheless, the result could hurt some borrowers particularly homeowners who aren’t on fixed rate mortgage deals. They should start thinking now about how they may cope with potentially, considerably higher mortgage costs.
“If the base rate reaches 1%, they could find themselves paying hundreds of pounds more a month. For example, based on the current average standard variable rate of 4.41% homeowners with a 25-year £200,000 mortgage could see their repayments rise by £115.98.
“The rising cost of living means that where possible households should be thinking about how they can create a little bit of extra wriggle room to deal with higher or unexpected bills in the coming months.”
Luke Bartholomew, senior economist at abrdn, said: “The decision to keep rates on hold today will certainly surprise some investors as the Bank has done little to push back on mounting speculation about an imminent hike.
“We expect a hike in rates to come through in December, when policy makers will have at least some tentative evidence on how employment has performed after the expiration of furlough.
“And indeed further rate increases next year. So the message to investors is that rate hikes are coming soon, but not to hang too closely to every speech and interview by rate setters.”