The Bank of England’s Monetary Policy Committee voted by a 7-2 majority to leave the base rate unchanged at 0.1% this month, despite widespread speculation that an increase could be on the cards. The base rate has been held at this level since March 2020, when it was reduced from 0.25% to help the UK weather the economic impact of Coronavirus. Rates haven't increased since August 2018, but markets expect a rise imminently to help curb inflation, which is already more than 3% and forecast to reach 4% in the months to come – more than double the government’s 2% inflation target. The Bank of England said it “will be necessary over coming months to increase Bank Rate in order to return inflation to the 2% target” if its projections come to pass. When inflation is more than 1% higher or lower than the Government’s target, the Governor of the Bank of England, Andrew Bailey, must write a letter to the Chancellor Rishi Sunak explaining why, and what measures the Bank will introduce to tackle it. Prices have risen sharply since lockdown measures were removed and the economy has opened up, and soaring energy bills and petrol prices mean they are unlikely to fall anytime soon.
What an interest rate rise would mean for you
Homeowners may be breathing a sigh of relief that there’s been no change to the base rate this month, but it’s still wise to prepare for increases, especially as the market-implied path for base rate suggests it could rise to 1% by the end of next year. Higher interest rates aren’t good news for borrowers, and recent weeks have already seen several of the most competitive fixed rate mortgage deals pulled from the market in anticipation of a rate rise. If you have a variable rate mortgage and rates do go up in the next couple of months, then your payments are likely to rise, although it’ll be down to individual lenders to decide whether they will pass on any increase in full. If you have a base rate tracker, which tracks the base rate plus a set percentage, then your rate will definitely increase by the same amount as any rise in the base rate. Homeowners who are locked into fixed rate mortgages won’t see any change to their monthly payments when rates go up. However, if your fixed deal is due to come to an end soon, it may be worth looking for your next mortgage sooner rather than later. It is usually possible to secure a mortgage three to six months before your current deal ends, which means you can take advantage of today’s low rates while they are still available.
