The rate hike will put more pressure on borrowers, particularly those whose mortgages track the bank’s policy rate. Many homeowners will be shielded from the recent hikes because they fixed their mortgages at a time when interest rates were extremely low during the coronavirus pandemic. However, those whose fixed-interest terms are expiring in the coming months will face significantly higher lending rates if they want to do new business.
The bank also said the UK economy is unlikely to slide into recession this year – two straight quarters of negative growth – due in part to the recent fall in energy costs and a pick-up in economic activity in China after the end of the zero-period -COVID policies and a friendlier than expected environment in Europe.
Despite the improved growth prospects, the bank does not expect a major recovery.
“The level of growth is still weak, let’s be honest,” Bank of England Governor Andrew Bailey told reporters after the interest rate decision.
Bailey said the bank is giving “no guidance” on whether interest rates will rise again. Financial markets are anticipating a possible quarter point or two rise in this current cycle, although much will depend on how quickly inflation falls in the coming months.
“We still expect today’s rate hike to be the last in this tightening cycle,” said Luke Bartholomew, chief economist at asset management firm abrdn. “But the risks are strongly in the direction of higher interest rates and inflation will need to behave in the coming months if policy is indeed to remain at this level.”
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