The Bank of England has raised interest rates for a fifth time in succession to tackle an inflation rate that is heading towards 11% amid soaring household energy bills.
In a move widely expected by City economists, the Bank’s monetary policy committee (MPC) voted by a majority to increase its key base rate by 0.25 percentage points to 1.25% in response to living costs rising at the fastest annual rate for four decades.
It also said it was ready to “act forcefully” if required, signalling further rate rises in the coming months.
The increase is only guaranteed to be passed on to borrowers with home loans that have rates explicitly linked to the Bank base rate. These are tracker mortgages, and some lenders’ rates for those who have finished a short-term deal.
Santander, for example, has what it calls a follow-on rate for borrowers who have taken out deals since 23 January 2018. This is 3.25 percentage points above the base rate, so will move up to 4.5% after the latest announcement.
The BoE dropped its guidance from May when it said most committee members believed “some degree of further tightening in monetary policy may still be appropriate in the coming months”.
Crucially, the minutes of the latest meeting read: “The committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”
That was seen as guidance that, as far as Bank rate is concerned, there was now a greater chance of a 0.5% percentage point increase ahead.
As the Bank was giving its update, growing fears of a global recession were continuing to take a hold of financial markets, with stock markets in Europe widely down by more than 2.5% as the recent rush for safe havens reared its head again.
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