The Bank of England has announced the benchmark interest rate will rise from 4.5% to 5%, the 13th consecutive rise since December 2021
After weeks of speculation, the Bank of England has confirmed a 5% interest rate with the latest rise of 0.5%.
UK inflation has stayed high throughout the spring, sticking at 8.7% in both April and May.
UK interest rates are still forecasted by many to reach 6% by the end of the year.
The value of the pound, which has been steady in the last six months, began to slide shortly after the announcement.
The BoE released a video explaining why interest rates have hit 5%
Andrew Bailey sets out the reasons behind today’s decision to raise interest rates. pic.twitter.com/58AqMJVMqD
— Bank of England (@bankofengland) June 22, 2023
In it, governor Andrew Bailey states that the Bank will “continue to do whatever is necessary” to bring interest rates down to the 2% target.
In another interview with Sky News, Andrew Bailey admitted that “current levels, I’ll be absolutely honest, are unsustainable” in an interview with Sky News.
Fixed-rate mortgage holders face rocketing interest
Concerns have been raised about the impact on borrowers as fixed-rate mortgages continue to rise, with millions of households risking significant slices of their income on higher rates.
Laura Suter, head of personal finance at AJ Bell, commented:
“Many who fixed two years ago are facing the prospect of a tripling of their mortgage interest, which will add hundreds of pounds to the average monthly mortgage bill.
“The worst thing a homeowner can do right now is bury their head in the sand and just let their fixed-rate deal end. The Standard Variable Rates that mortgage lenders charge those who have come off their fixed deal are truly eye-watering now, standing at 7.5% on average* – even one month of mortgage payments at that rate could be crippling to someone’s finances.”
Clearer direction is needed, according to some
Nick Leeming, chairman of Jackson-Stops, comments: “Just like the rain, inflation remains a persistent dampener for savers and mortgage borrowers. Just when we have a few days of sunshine and a moment of market reprieve, a storm soon brings us back down to earth.
“Today’s commitment to a 0.5% rise demonstrates just how determined the Bank of England is taking the need to curb inflation.
“In the same week that Michael Gove launched his book outlining Levelling Up 2.0, inflation stood firm at 8.7%. Renters, homeowners and housebuilders are all hoping for much clearer direction from the Government on what the future holds for the property market.
“Looking back over the last 20 years, it was in late 2007 that the UK saw 6% mortgage rates consistently average for two-year fix deals. It’s clear that the Government and Bank of England need to work much closely together in the coming few months to avoid unwanted consequences.”
