BoE hikes interest rates again: Experts respond

The Bank of England has raised interest rates for the eleventh time in a row after inflation unexpectedly jumped to 10.4% in February; base rate has been increased by a quarter-of-one-percent to 4.25% in an attempt to slow rising prices – by Jemima Reeves

The Bank has been steadily putting up interest rates in a bid to tackle the soaring cost of living. and the  rise comes amid lingering worries over the global financial system after a number of bank failures.

Inflation remains close to its highest level for 40 years – more than five times higher than the Bank’s target rate – and many families will be feeling the pinch, as global events and supply-side inflation are increasingly seen as the problem, rather than their own profligacy.

Here are some reactions from experts around financial markets and beyond:

Mohsin Rashid, CEO of ZIPZERO, said: “Yesterday’s surprise announcement that inflation is once again rising quashed any possibility of the Bank pressing pause on interest rate hikes.

“The issue right now is not that no one can win, certainly energy companies are making a fortune, but that too many are losing. For homeowners on variable mortgage interest rates, this latest hike is yet another blow which may lead to repossession.

“Meanwhile, households cannot continue to bear enduring inflation. The persistent rise of essential goods, especially food which yesterday’s figures revealed as a predominant perpetrator of overall inflation, is pushing households into poverty; people have run out of room to cut costs, and many are now having to skip meals.

“It is, therefore, imperative that the Bank does everything it can to tackle inflation. However, the damage these decisions inflict upon households is unforgiving. With support shortcoming, those seeking to improve their financial security must search for novel tech solutions which can unlock new money-saving opportunities.”

Lily Megson, Policy Director at My Pension Expert, said: “Yesterday’s shock jump in inflation may have tipped the balance, encouraging this further hike in interest rates. Consumers’ reactions will likely be mixed.

“Rising interest rates would typically be beneficial for savers and pension planners. However, the base rate is still less than half the rate of inflation, meaning savings are losing value in real terms, which is placing relentless pressure on millions of people’s finances. It comes as little surprise, therefore, that My Pension Expert’s own research found that over two fifths (43%) of people believe that the current economic environment is derailing their financial plan. Elsewhere, over a third (34%) of Britons cite rising interest rates as the reason for delaying their retirement.

“In such uncertain times, it is vital that everyone – not just society’s most affluent – feel able to safeguard themselves from economic uncertainty. So, it is important that they have access to the right support. From clear, jargon-free information to accessible independent financial advice, the government, regulators, and the financial services industry itself, must work together to ensure everyone has the help they need to weather this financial storm. In doing so, Britons will be able to better understand their financial situation and make informed decisions to protect their financial future.”

Jatin Ondhia, CEO of Shojin : “Today’s interest rate decision was on a knife-edge. The stakes were so high with elevated tensions across the US and European banking systems and yesterday’s shock rise in inflation – this all undoubtedly turned the heat up on the Bank of England, and it is telling that it opted to stick to its tough line of hiking interest rates to curb the cost-of-living crisis.

“Those hoping for a respite from tighter monetary policy may have a longer wait ahead than anticipated, as policymakers grapple with the dual task of confronting inflation and easing bank jitters. As such, in the current climate, investors must stay focused on their individual goals, assess the risk exposure they are comfortable with, and ensure they are using all the tools and techniques at their disposal to protect their wealth against uncertainty and changing market conditions. If they do, they could find new opportunities amid all the turbulence. From diversification to tax efficiency, agility will be the watchword as the foggy conditions persist.”

John Glencross, CEO and Co-Founder of Calculus Capital said: “Today’s news is not wholly unexpected following the higher-than-expected inflation figures published this month. The Bank of England is under pressure to navigate a difficult economic period but we’re pleased to see that the UK has shown remarkable resilience despite significant uncertainty caused by rising interest rates, supply chain issues, increases in wages and a worsening cost-of-living crisis. Demand for growth capital remains at unprecedented levels and there is now a real opportunity to provide meaningful support to a new generation of UK companies driving the digital revolution forward, improving healthcare and creating jobs and opportunities throughout the country.

“Knowledge intensive companies within technology and healthcare – two of the UK’s fastest growing sectors – operate in an exciting investment landscape due to the UK’s strong presence of research universities, robust Government support, and thriving M&A market. The UK’s technology sector leads the European market, having raised double the amount of VC funding of any other country in 2022. Meanwhile, the UK healthcare sector has, in recent years, been a world leader in fighting pandemics and advancing patient care.

“Calculus, which established the first approved EIS fund 24 years ago, launched a Knowledge Intensive Enterprise Investment Scheme (EIS) Fund in October to provide investors with the opportunity to not only benefit from the diversified, strong performing and tax efficient nature of its products, but to also support innovative UK companies with a societal purpose and impact with at least 80% of the fund’s capital invested into businesses carrying out research and development to create new intellectual property.”

Rachel Winter, Partner at Killik & Co, said “Despite a turbulent few weeks for the financial sector, the Bank of England has chosen to ‘stay the course’, opting for a 12th consecutive increase to the base rate. This decision, which echoes the ECB’s decision last week, will act as a clear signal to markets that crushing inflation remains the chief priority for the central bank.

“Whilst today’s news will be met with mixed reactions across the board, a dampened stock market does present a good opportunity for bolder investors to bolster their portfolios whilst prices remain low relative to last year.” 

Dan Howe, Head of Investment Trusts at Janus Henderson Investors, comments: “A further uptick in interest rates continues to muddy the waters for UK consumers. With scant few savings products reflecting the base rate, those with money in the bank will feel little change to the speed at which inflation is eating away at their savings. More hard hit will be those households up and down the UK either who have, or are hoping to get, mortgages as their finances will be further pressurised by this increase.

“The importance of making your money work both harder and smarter has rarely been as great. Step one is finding the best savings product for an emergency fund. But beyond that, it’s important that additional savings are properly invested in a diverse portfolio. This can deliver much welcomed inflation protection as well as help to build a more robust financial future. A popular option is income investing, which, crucially, is able to help investors at all life stages. Vehicles that pay dividends can be a great help to those whose budgets are being squeezed right now by providing an extra stream of income. And for those who wish to benefit from further compounding, those dividends can be reinvested too.”

Garry White, Chief Investment Commentator at Charles Stanley, says: “Many economists believed the Bank of England would pause its run of interest rate hikes as inflation appeared on course to ease steadily. However, the surprise jump in food inflation at the start of the year largely forced the Bank of England’s hand into making its 11th interest rate rise in 18 months. CPI inflation in January jumped to 10.4% against expectation for a fall to 9.9% – staff shortages in hospitality and rising food process drove the hike.

“The central bank issued reassuring words following recent concerns about the banking sector. The Bank of England’s Financial Policy Committee (FPC) judges that the UK banking system maintains robust capital and strong liquidity positions and is well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates. The FPC’s assessment is that the UK banking system remains resilient.

“In Jeremy Hunt’s Budget, the Office for National Statistic said it expected inflation to fall to 2.9% by December – but this data makes that target look ambitious. This means there may be at least one more rate rise ahead, but we are probably close to the top of the cycle. However, if this 2.9% target is to be met, interest rates may not be coming down for quite some time.”

Emma-Lou Montgomery, associate director for Personal Investing at Fidelity International, comments:  

No one could say the Bank of England’s decision to raise the base rate to 4.25% was unexpected. The surprise jump in UK inflation to a 45-year high of 10.4% in February, while an 11^th hour shock, only reinforced expectations that the BoE would have no choice but to raise interest rates again. It does mean though that the UK’s central bank has now increased interest rates 11 times in a row. And at plus-4% that’s also the highest it has been in more than 14 years.

The Bank of England also had no choice but to acknowledge that inflation is firmly in the driving seat, with concerns over the global banking crisis set aside in favour of tackling a troubling spike in the cost of living.

We all know first-hand how inflation has impacted our daily lives, with the price of everything from salad to mortgage payments going up.  So this will undoubtedly be a bitter pill to swallow for struggling households, who were already grappling with higher costs for borrowing and everyday spending.”