Shock Bank rate rise

ended 16. December 2021

The Bank of England today raised rates, despite the Omicron variant wreaking havoc. Inflation is clearly the bigger concern. We sought the views of brokers and property experts around the UK.

13 responses from the Newspage community

Last month when we thought a rate rise was a nailed on certainty, the Bank stepped back from the brink. Now with the Omicron variant about to take another sledgehammer to the economy, they've gone and increased the rate when everyone thought we should hold and see how the third wave pans out. However inflation really is back with a bang. Let's just hope they've called this right, because if they haven't we're in for a rocky ride."
Sacré bleu. Not only are we unable to travel to France to stock up on foie gras and bordeaux for the festive season, but now the rate of inflation is being curbed by the hike in interest rates. Was it expected? Mais oui. But it all feels rather uneasy considering the potential impact of Omicron. For some that have bought high, the fantasy of owning a coastal retreat has come crashing down like a wave onto the shore. Perhaps this change of heart on exiting the city, and the rate increase, will be the final assault in halting the ludicrously inflated prices we have been seeing.
Star Quote
"Given the radical uncertainty created by the Omicron variant, this decision has caught many off guard. Most thought the Bank would hold off until the New Year given the speed with which things are escalating. The Bank has shown it is prepared to get tough and roll up its sleeve with inflation, and Wednesday's inflation data was clearly the catalyst for the hike. The reality is that this increase has already been priced in so will have little effect on mortgage products available now. The real question is whether this is the start of a trend over the next 12 months and just how tough the Bank is prepared to get. I expect to see an increased clamour for borrowers to fix in where they can, with many worried as they have not experienced an increasing rate environment before."
Star Quote
"The Bank of England delivered its own vaccine jab to the economy today to ward off infection from inflation. The Bank of England has shown its teeth, and more importantly that it still has them. The real question is how quickly can inflation be brought to heel or will we need a booster jab to rates in early 22? This speculation could lead to further rate rises but rates will still be very low compared to what has been offered historically. I expect the mortgage and property markets to shrug this off."
"This decision will come as a shock to many but the Bank of England clearly believes the Omicron variant is less of a threat to the UK economy than soaring inflation. Let's hope this call was the right one. If not, it could backfire tremendously."
"Despite the Omicron variant, a rate rise is needed as interest rates have been too low for too long. Yes, we will see people panicking, but remember 0.25% is still a ridiculously low base rate and all it is doing is putting rates back to where they were in March 2020. It may feel like the end of the world but it's not."
"Is it really a shock? Last month we were saying it's a shock they stayed level, now it' a shock they are increasing. Remember, the MPC is looking far beyond the next few months when making this decision. Most borrowers will be unaffected as they are on fixed rates. Many borrowers coming to the end of their fixed rate will find that they can still get better rates today than they are currently on as when they fixed 2-5 years ago as rates were still generally higher than they are today." Lenders bumped rates up slightly a few weeks ago in anticipation of this so I'm not expecting mass increases as they already factored a rise in. The few people on tracker rates will see a small increase, but most will still be in a better position than 2 years ago.
"While spiralling inflation has caused a great deal of concern, this is an unexpected and brave decision as we enter the festive period. A swing of 6 votes to now favouring a rate rise since the last meeting suggests concerns over inflation are far greater than first reported, and greater than concerns about the Omicron variant. This rate rise will only tighten purse strings further, and could result in a dramatic and sudden drop in inflation beyond what the Government intends. This could stall the housing market overnight as people decide to sit tight and wait to see what the future brings before committing to the largest expense life offers."
"The Bank of England is clearly extremely worried about the increase in inflation from 4.2% to 5.1%, a ten-year high. It's a steep jump and looks set to go even higher over the coming months. More rate hikes are looking inevitable. Throw Omicron into the mix, and I think house price falls are now almost certain."
Slightly surprised with the timing. However, it is still much lower than pre-covid levels, when the base rate was at 0.75%. It is unlikely to impact mortgage rates in the short term as lenders have increased these a few months ago in anticipation of a rate rise.
"Just a few weeks ago, most experts were sure that the Bank of England would raise the base rate at this month's meeting, yet the Omicron variant made others question if the economy is too fragile for a pre-Christmas rise. The Bank is clearly concerned about the highest inflation in 10 years and felt that it had to send a message now. Time will tell what it will do in February but few would be shocked if the base rate returns to the pre pandemic 0.75% sometime in 2022."
Although an interest rate rise has been on the cards due to inflation, this will come as quite a shock to many businesses. Given the new Covid crisis we are facing, I think many in the finance industry expected BOE to wait until the new year. Cost of borrowing up, wages up, materials up, new covid restrictions in place. How much more pain can small businesses endure?
"Let's be honest, this has been on the cards for some time. Inflation has been going through the roof and we have been telling anyone who will listen to secure a new fixed rate deal sooner rather than later. Though the Omicron variant is on the rampage right now we're just going to have to deal with a slight bit of short-term pain until it burns itself out. The spectre of sky high inflation poses a bigger long term problem to household finances that needs to dealt with sooner rather than later. In reality, this is a very small increase and will take time to make much of a significant difference to actual mortgage interest rates which have crept up anyway in expectation of a rate rise."