The Bank of England has increased interest rates from 1% to 1.25% in an attempt to stem the pace of soaring prices; this is the fifth consecutive rate rise, pushing them to the highest level in 13 years.

The increase comes as family finances face a cost of living crisis, driven by record fuel and energy prices; meantime, inflation is at a 40-year high of 9% and the Bank warned it could hit 11% later this year when rising energy prices could drive living costs even higher.
Six of the nine members of the Bank’s Monetary Policy Committee voted to raise rates to 1.25%, with three backing a bigger increase to 1.5%; it has said that it would ‘act forcefully’ should inflation pressures persist.

Minutes from its meeting reveals that the Bank expects the UK economy to shrink by 0.3% in Q2, although a return to growth in Q3 would see the UK would avoid recession this year – with a recession defined as the economy shrinking for two consecutive quarters.

However, the Bank forecasts that the economy will shrink in the final three months of this year, when the price cap on household energy bills is expected to be increased from £1,971 per year to about £2,800, pushing the increase in the cost of living to ‘slightly above 11%’ in October – more than five times the Bank’s inflation target of 2%.


Here are some reactions from a range of experts and commentators:
Mortgage borrowers
Richard Eagling, Senior Personal Finance Expert at NerdWallet said: ‘This hike in interest rates will only come as a further headache for borrowers. Increases in the base rate will bring with it higher mortgage payments for households with tracker or standard variable rate mortgages. And with inflation predicted to reach as high as 14% for the UK’s poorest this year, many will likely be concerned about how they can continue to afford repayments. ‘While there is no quick-fix solution to solve such financial stresses, action can be taken to ease part of the burden. For example, borrowers could speak to their mortgage provider about the possibility of a mortgage holiday or temporarily making interest-only payments. Alternatively, they could use comparison websites to compare different mortgage deals and consider switching to a provider with a lower rate. However, these options could come with further costs in the longer-term, so understanding the terms and conditions is vital before pursuing either option. ‘These are uncertain times for borrowers, and they will not be able to transform their situation overnight. However, being proactive and exploring the various options available to them will be a good starting point. In doing so, they will likely feel more in control of their finances in the long-term.’
Chieu Cao, CEO Mintago, said: ‘The BoE’s decision will hardly be celebrated. Given soaring inflation, many individuals feel they don’t have enough money to live on, let alone save. Indeed, Mintago’s research found that 72% of Britons in full time employment feel they are prioritising immediate financial commitments (e.g. mortgages or utility bills) over their long-term financial goals. And with pressure likely to remain for some time, many will feel like their finances are spiralling out of control.’ ‘It is vital that Britons have a strong support system to help them better understand their situation and take steps to regain control – and employers could play a valuable role in this regard. For example, ensuring that employees feel they are able to discuss their concerns in an open and honest environment would be a good start. So too would providing their team’s access to financial platforms which help them access their pension savings and understand their financial situation. ‘Certainly, these issues cannot be fixed overnight and it’s impossible to predict what the economic situation will be like further down the line. However, employers can do what they can to provide the appropriate support to help their workforce better understand their financial situation. And with such support, Britons will be able to look to the future with greater financial confidence.’
Calling for government support
Mohsin Rashid, co-founder of ZIPZERO, said: ‘That’s now five interest rates hikes since December. While designed to curb spiralling inflation, in reality this will only place a greater strain on many households’ finances in the months to come. Anyone with debts, most notably mortgages, could now see their repayments increase, eating further into their budgets for the everyday essentials.

‘Action is needed, and fast. But leaving it up to Britons to ‘take control of their finances’ is too lazy. Rather, public and private sector collaboration is needed – the Government, energy providers and retailers must respond quickly, doubling down on their commitments to help people through this challenging economic climate.

‘It’s telling that, according to ZIPZERO’s poll of 2,000 UK adults just this week, 84% think energy providers should be doing a bit (25%) or a lot (59%) more to help people through the cost-of-living crisis, with 81% saying the same of the Government, and 70% wanting retailers to offer more support. So, we are calling on David Buttress, the Government’s new ‘cost-of-living tsar’, to work with energy firms and retailers to band together and deliver workable solutions to help customers carve out a more financially secure future.’
Pension Planners
Andrew Megson, executive chairman of My Pension Expert said: ‘Under ‘normal’ circumstances, raised interest rates would be welcomed by pension planners. But these conditions are far from normal. Unprecedented economic uncertainty, fuelled by soaring inflation, is threatening the retirement prospects of 50% of Britons aged 40 and over, according to research from My Pension Expert. This boost in interest rates, therefore, is unlikely to offer any meaningful comfort.’Remaining calm in the face of volatility is absolutely crucial – panic could result in people making snap decisions and cause permanent damage to their future finances. Reviewing one’s retirement strategy as early as possible would certainly be advisable. So too, would exploring all avenues with the help of an independent financial adviser. Indeed, options such as flexible-access drawdowns and riskier investments offering better returns could help Britons to best protect their hard-saved cash and hold its value against inflation – the key will be to utilise the expertise of an adviser to ensure Britons are choosing the option that best suits their needs.’Unfortunately, things are expected to worsen before they get better. But action can be taken to limit the potential damage inflicted on Britons’ future finances. Provided they seek advice and consider all viable options, I remain confident that people will remain largely on track to the financially secure retirement they crave.

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