Bank of England interest rate hiked to highest level since 2008. What BoE decision means for savers, mortgage holders

The Bank of England (BoE) on Thursday made its 14th consecutive increase in interest rates, bringing them to their highest level since early 2008. The central bank raised interest rates by 25 basis points, setting them at 5.25 per cent. The bank emphasized that the persistence of high inflation makes it improbable for them to halt the rate hikes anytime soon, according to a Reuters report.

Bank of England's move indicates that borrowing costs are likely to remain elevated for the foreseeable future. The initial response in the financial markets was mixed. The pound experienced a drop but later recovered some of the losses, while stocks remained in negative territory.

Although energy prices are anticipated to decrease in the remaining months of the year, leading to a decline in inflation below 5 per cent in the fourth quarter, the government is on track to achieve its goal of halving inflation by the end of 2023. This achievement comes after experiencing a peak of 10.5 per cent at the beginning of the year.

Governor Andrew Bailey of Bank of England

Governor Andrew Bailey of Bank of England spoke to reporters after the British central bank raised its key interest rate by a quarter of a percentage point to 5.25 per cent on Thursday.

"We expect inflation to take a further step down in the July data which will be published in two weeks time, I think that will come down to around 7 per cent at that point... followed by another larger step down in October's data," Andrew Bailey said.

"We do expect core goods inflation to ease over the rest of the year. And there are indicators that suggest it could happen faster than our projection," Andrew Bailey said.

What This Means For People in UK

The Bank is persistently raising interest rates due to the cost of living remaining well above the 2 per cent target. This increase in interest rates has implications for both savers and mortgage holders. However, banks have faced criticism for not passing on these rate hikes to savers.

According to data from the Financial Conduct Authority (FCA), among the nine largest lenders, only 28 per cent of the base rate increases were transmitted to easy access customers between January 2022 and May 2023. The new Consumer Duty rules now mandate lenders to pass on rates and ensure that any increases are fair.

Those who have a tracker or variable mortgage, their payments will almost immediately rise in response to a base rate hike. These types of mortgages align with the Bank of England's rate movements, so when the rate goes up, your payments increase, and when it goes down, your bills decrease accordingly.

Once a base rate change occurs, your lender will inform you about how it will affect your mortgage. Your mortgage agreement should specify how quickly these adjustments will take effect.

For those with a fixed deal, you are currently protected from the rate hikes. However, once your fixed deal ends, you may end up paying substantially more than what you were paying in previous years.

FAQs

Q1. What is the current Bank of England interest rate?
A1. Bank of England raised interest rates for the 14th time on Thursday to their highest since early 2008, and signalled borrowing costs will likely stay high for some time.

Q2. Who is the Governor of Bank of England?
A2. Andrew Bailey is the present Governor of Bank of England.