The Bank of England was expected to raise its key rate this week, but the interest rate hike has been delayed as the country mourns.
One of the major business decisions that has been delayed as the country – and many parts of the world – mourn the passing of Queen Elizabeth is increasing the bank of england basic rate.
That gives banks and lenders an extra week at the current rate of 1.75%, having already been pushed higher from its all-time low of 0.1% several times this year. Many had speculated that a new rate of 2.25% was on the cards.
The Monetary Policy Committee will instead announce an interest rate hike on September 22 “due to the period of national mourning.” While the potential new rate would be the highest seen since 2008, rates tended to fluctuate at much higher levels before the financial crisis 14 years ago.
The delay is unusual, as meetings with the committee are normally held on a strictly planned schedule, set at least a year in advance and only waived in emergencies or extreme circumstances.
where we are now
The latest interest rate hike in August saw the base rate raised by 0.5 percentage points to 1.75%, in what was the biggest hike in 27 years. It was the sixth consecutive interest rate hike and came with warnings of a recession later this year.
The action was taken in part following the price spike, which the Bank blamed on Russia’s invasion of Ukraine. Inflation was expected to hit 13.3% later this year, although Prime Minister Liz Truss’ latest energy cost package is expected to curb that.
What the majority of homeowners are most keen to know is how this might affect their mortgage costs, with a ballpark figure of an extra £50 a month in payments being touted as an average estimate.
Rising interest rates are likely to cause many borrowers to reassess their mortgages right now and try to secure the best fixed rates available to protect against future increases from lenders.
One of the positive aspects of a rising base rate is that it could help the pound, which is currently at one of its lowest rates against the dollar and some speculators fear it could aligns with the US dollar.
Where will the rise in interest rates stop?
It is impossible to know how far the Bank of England will raise its base rate as the country continues to battle inflation and the cost of living crisis. However, the new Prime Minister’s energy plan, unveiled last week, could make a difference.
Bank of England Governor Andrew Bailey says Liz Truss’ energy plan, which will cap the energy bill for typical households at £2,500 a year until 2024, will be “considered” when the Committee on monetary policy will propose its next decision. .
Referring to speculation that the UK is heading into recession, Bailey added: “The person who is going to put the UK into recession is Vladimir Putin, not the MPC. [Monetary Policy Committee].”
However, the Prime Minister pointed the finger at the Bank of England during her campaign, saying it had not reacted quickly enough to rising prices and in protecting vulnerable households.
As the cost of living saga rages on, new Chancellor of the Exchequer Kwasi Kwarteng has said he will now meet Governor Andrew Bailey twice a week in a bid to address issues facing the UK is confronted.
In terms of mortgage rates, lenders are expected to continue raising rates, although there is still a lot of competition in the market. The general consensus is that those whose rates are coming to an end, or those with variable rates, fix now to hedge against a future rise in interest rates.