The Bank of England (BoE) raised its base rate by 25 basis points to 0.75%.
The Monetary Policy Committee (MPC) voted 8-1, with a single member preferring to keep the bank rate at 0.5%.
The base rate is now seen at its highest level since March 2020.
In a summary of the MPC meeting, the body says that earlier expectations that inflation would peak at “around” 7.25% in April 2022 have since been revised upwards due to the Russian invasion of Ukraine and its enthusiastic effect on commodity prices next to another supply chain. Disorders.
It details: “Developments since the February report are likely to underscore both the peak of inflation as well as the negative impact on activity by boosting household income.”
It adds: “Inflation is expected to continue to rise in the coming months, to around 8% in 2022 Q2, and perhaps even later this year.”
The MPC believes that falling consumer confidence, a result of the squeezed household disposable income, will also dampen UK GDP.
Earlier this month, the BoE produced a report showing public confidence in the institution’s handling of the inflation rate for the fourth quarter in a row.
Aegon Retirement Director Steven Cameron said: “The Bank of England has voted for a further 0.25% interest rate increase to 0.75%, the third consecutive increase and highly unlikely the last. With the cost of living crisis set to accelerate, the pressure on public finances, this will be bad news for lenders, but may offer a glimmer of hope to cash savers.
“Inflation has been at its highest rate for almost three decades and the latest Bank of England forecast says that inflation will continue to rise in the coming months, to around 8% in 2022 Q2, and maybe even later this year, as the economic impact of the war in Ukraine contributes to the high prices as we emerge from the pandemic.
“This perfect storm means that all eyes are on the Rishi Sunak to see if next week’s mini-budget includes any steps to reduce living costs, or to continue to provide targeted support on fuel costs or on particularly affected groups such as pensions on fixed Income: Higher borrowing costs, a 1.25% increase in national insurance and frozen income tax thresholds present a threefold Whammy to April payday.
Kensington Mortgages Capital Markets and Digital Director Alex Maddox said: “This must have been a difficult decision for the MPC with so many volatile macros and geopolitical events to attend.
“Markets expect the bank rate to hit 2% by the end of the year, so this rate increase from 0.25% to 0.75% is a step up this journey.
“With the risk of wage inflation or even Japanese stagflation continuing to rise, the MPC may have some more difficult meetings in 2022.”
Meanwhile, Knight Frank Finance Managing Partner Simon Gammon added: “The BoE’s third consecutive interest rate hike guarantees that we will continue to see lenders withdraw and withdraw products on a daily basis.
“Mortgage rates that lenders see today are significantly higher than six months ago and in six months we would expect to see a similar increase. Often the repricing we see is as low as 0.1% or 0 , 2%, but if this happens every other week, then you start to see a steady upward trend.
“Five-year fixed rates were as low as 0.91% at the end of last year, but now you’re lucky to get them below 2%. You did not miss the boat, these rates are still very low according to history Standards, but we expect that the upward trajectory of mortgage rates will hold up for the foreseeable future.
Quilter mortgage expert Karen Noye said: “This increase could kibosh the ever-increasing house prices we’ve seen in recent years.
“The race for space, the stampede holiday and the austerity measures are all fueled to create an incredibly hot housing market. However, today’s news, coupled with the economic insecurity arising from the war in Russia in the cost of living crisis, all will possibly finally stop house prices.
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