The Bank’s Monetary Policy Committee (MPC) voted by a 6-3 majority to raise interest rates by 0.25 percentage points from 5 per cent to 5.25 per cent. Two members preferred to increase base rate by 0.5 percentage points, to 5.5 per cent, and one member preferred to maintain it at 5 per cent.
It was last at 5.25 per cent in February 2008, but is forecast to peak to just over 6 per cent before averaging just under 5.5 per cent over the next three years.
This is now the fourteenth base rate rise since the Bank started its hiking cycle in December 2021 from the historic 0.1 per cent low in a bid to curb soaring inflation which has actually dropped to 7.9 per cent in the year to June.
According to the Bank’s latest projections, inflation is set to fall further to around 5 per cent this year and return to its 2 per cent target by Q2 2025.
Elsewhere, calendar-year GDP growth is expected to be 0.5 per cent in 2023 and in 2024, and 0.25 per cent in 2025.
Mortgage rates under the spotlight
This latest rise will feed into higher mortgage costs for the two million homeowners on variable rates.
According to calculations by Moneycomms for TotallyMoney, a 0.25 percentage points hike will lead to another £32 increase in monthly mortgage repayments (based on the average UK property costing £270,708 with a 75 per cent loan to value LTV).
However, since the rate hikes, the average homeowner will be forking out an extra £600 each month compared to December 2021.
For Londoners, the figures are starker. Given the average house price was £519,934, these homeowners will be hit with an extra £61 per month on repayments. Overall, the average homeowner is now paying £1,139 per month more than before the hikes began.
Meanwhile, homeowners on fixed rate mortgage deals are protected, but with an estimated 800,000 set to mature in the second half of this year, they may be in for a bill shock when they come to remortgage. Many will be going from sub-2 per cent deals to closer to 6 per cent now.
However, brokers say the expected base rate rise has already been priced into fixed rate mortgages which will have no impact on deals available.
Craig Fish, managing director at London-based mortgage broker Lodestone, said: “This will have no impact on the fixed rates that are available. Most fixed rates on offer right now already have a rate rise factored into them. What is going to impact them, though, is the release of the inflation data on 16 August and what that does to SWAP rates, which influence mortgage pricing. If, as expected, inflation falls then I suspect we may see more lenders continue to lower rates as we have seen over the past week.”
