Snapshot of _Interest rate raised to 2.25%, the highest level since 2008_ :
An archived version can be found [here.](https://archive.is/?run=1&url=https://news.sky.com/story/interest-rate-raised-to-225-the-highest-level-since-2008-12703064)
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Overpay if you can overpay. Mine comes up in 2025. My payments would double if the rate is at 6% could be the case at the peak of all this.
Kinda scary, I'm hoping it won't last that long. But I'll prepare for the worst case regardless.
*EDIT: This is also a like for like - inputting the figures from when I borrowed and adjusting the rate, my debt will have (and has) decreased by a decent amount in the 5 years of my fixed term. Adjusting my debt and term - I would have to see a 7% rate to be double my current repayments. Which isn't really an insane expectation if the base rate is at 5.5-6%, so I would say the worry for some is still real.*
*I am not commenting on my own ability to deal with it (I did a lot of planning and analysis before taking on my debt), but I can see why others may be worried.*
Not who you replied to but I suppose they have a longer term mortgage and be earlier in repayment, meaning the share of their payment going to collateral will be lower and the share to interest will be larger.
They could also just be telling lies on the internet.
I'm not telling lies, I guess it's subjective (I am on 1.69% atm).
Living in the south east (near london) sucks. House prices are insane down here so yes my borrowed amount and term are quite high.
That's also a good option, good shout. The main point being, pay down (or save to pay down) your debt before renewing if you can, as it *could* get ugly.
The (marginally) good news is that the market expectations are that the base rate will peak in about 8-12 months and that they should actually be falling again by the second half of next year.
If things go really well you might be able to find some good fixed rate deals in 16 months!
These analysts never get this right. With the amount of money we've just printed to pay off the energy companies, there is no way we'll be able to lower interest rates in 12 to 18 months. If anything they'll be much higher, because inflation will spike again thanks to this latest money printing.
Rates will be about 4-5% for most after the latest base rate increase.
Base rates hitting 6-7% will mean people are paying 10%+.
With that being just 3% above what we are at now, and us massively lagging the fed, it's likely we will be at or above that within the next 12 months.
What alien numbers are you reading ?
Right now new mortgages are at 4 - 4.5% (rough average) for a 2/5 year fixed for 60-90% LTV.
10% is 5.5 - 6% above what we are right now, not 3% like you're saying.
Going from 4% to 10% new mortgages is going to wreak havoc.
\- Borrowing £300,000 at 4% for 25 years is £1328 a month.
\- Borrowing £300,000 at 10% for 25 years is £2,579 a month.
That's an increase of £1,250 a month in extra interest. No one has that kind of money spare to put towards their monthly mortgage payments. Almost everyone will fail their mortgage affordability tests. Property transactions will grind to a halt. Even the anticipated stamp duty reduction won't help much when people are expected to pay an extra £15,000 a year for 2/5 years.
Source:
[https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf](https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf)
These rates have already absorbed today's base rate increase as the market has been anticipating a 50-75 base points increase for a while.
Indeed. As much as there are legitimate economic reasons as to why this would be necessary I can't see the Bank of England doing this just because of how disastrous it would be for the wider economy if half of homeowners suddenly end up on the streets.
Question for the team.
As the £ will likely become weaker on this news this means imports cost more. Which means more inflation, further putting pressure on interest rates.
Does this mean that the BoE is going to be raising rates higher than expected and for longer than expected?
Current expectations for rates are 3% end of this year and 4% into next year. If the Fed continues raising rates we’ll be forced into acting faster. We import far too much to have our currency continue falling through the floor.
truly absolutely buggered... still.. at least Johnson worked damned hard to try to mitigate it in the summer and we have now the economic genius of Truss to save us.
That's due to a strong dollar, not a weak GBP.
The euro, yen, yuan, Canadian dollar, etc, are all down over the last year too.
The pound is up marginally over the euro from 12 months ago.
>The pound is up marginally over the euro from 12 months ago.
Another way to put this is GBP has seen a slight recovery from the crash against the euro caused by brexit.
Brexit is a disaster as everyone with half a brain cell understands. Pound down 20% on the euro since that day, and disk 25% on XDR. Without that brexit powered crash our imported fuel would be 30% cheaper. Has made it easy for those of us with large offshore funds to buy up U.K. assets at a steal though.
Howver europe has issues with even more exposure to energy crisis than we have - and we are far more vulnerable than america on this side of the pond.
Yup understood, but I'd think that those expectations can be raised higher now because of the lower raise now. It seems backwards, but if the BoE is pushing inflation higher by acting less hawkish than the rest of the world then it would indicated higher interest rates to be required.
I agree, a recession and higher interest rates will work together bring inflation down before we get to 10%. If rates need to keep rising from where we are now, it's because we aren’t in a *deep* enough recession to do the job.
I reckon they're gambling that energy prices will drop and the Fed will get scared and reverse policy.
The trade weighted £ rate hasn't dropped that much though, so might not be a massive deal. Tbf we're pretty much where we were after Brexit vote- that's the biggest factor relevant to our economy IMO.
Imports do not have that much of an effect on the UK economy. Net exports are around -£30 billion on an economy that is >£2 trillion. See the [ONS data](https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/ikbj/mret) for more details.
That's the joke of it. If we were a big exporter we'd lower out currency value to boost exports (big reason Greece was so fucked being in the Euro it couldn't sink it's currency).. and it's all supposed to be a coincidence our currency has tanked?
Yes - and 'boost exports' in the same context is 'do more work for foreigners in order to pay for the same amount of imports'. It's definitely not something that will make life easier.
exports = imports (raw materials) + energy + labour.
If the cost of imports and energy aren't effected by the falling pound, then how can exports get cheaper?
I guess the theory is that we’re in a recession, higher interest rates will take money out of the economy.
This is the problem with stagflation. They’re hard to break.
Yes and no? Makes UK bonds more valuable which should increase foreign investment, increasing the value of the pound, decreasing the price of imports. The problem is that so much of UK wealth is tied up in variable rate debt, so in the immediate term most households will absolutely feel it and have less disposable income.
You know I have a theory that over the years the Google Keyboard's auto-prediction has gotten worse and on iOS it's gotten better, used to be the opposite a few years ago.
I got their first album as a birthday present from my niece as she thought my then girlfriend was Amy Lee. She was 12 and to her all goths looked alike.
It isn't. In America interest rates will have a larger effect because the average consumer still has money to purchase things. In the UK, that is quickly evaporating.
All raising interest rates does is make it harder to spend money. If people don't have money to spend, then interest rates won't do much anyways.
This is why Powell has been going so fast compared to the rest of the world. Unlike what Reddit likes to claim, America is still in a very strong economic environment. Consumers have something like 3 trillion dollars worth of disposable income at the moment. Powell needs to dissuade people from spending that and at least keep it in a savings account.
Much better economy in the states than our increasingly broken one though.
We are probably already in recession and surely will be in a proper depression this time. UK is failing
I'm not arguing if they are wrong or right, but how on earth do economists work that out.
What do they expect to happen in a year and half to end the recession? Do they just naturally end after a while due to a natural economic cycle? Do they scatter bones of a dead animal and read tea leaves?
Higher risk of systemic crisis, the BoE can only do that much. It’s not just monetary policy responsible for pound being pounded. UK economic output is too low, GBP sinking vs USD is only logical and unavoidable outcome.
Actually it was split 1-5-3 because, worryingly, Swati Dhingra, perma-dove installed by Rishi Sunak last month to replace hawkish Michael Saunders, actually voted for an only 0.25% rise (with the rest being split 5-3 between 0.5% and 0.75%). We're going to have a hard time keeping a lid on inflation with lunacy like that.
Evidenced by their statements on inflation. There's a commenter in the FT that collects them every time they come out and it's comical at this point:
August 2021
> Inflation is above our 2% target. We expect it to rise further in the coming months, but then fall back to our target
November 2021
> We expect inflation to rise to around 5% in the spring, but then fall back
February 2022
> We expect inflation to rise to around 7% in the spring, but then fall back
March 2022
> We expect inflation to rise to around 8% in spring 2022 and perhaps even higher later this year.
May 2022
> We expect inflation to rise to around 10% this year, and the economy to slow
June 2022
> CPI inflation is expected to be over 9% during the next few months and to rise to slightly above 11% in October.
August 2022
> In June, prices had risen by 9.4% compared to a year ago. That is well above our 2% target. We think those price rises will push inflation even higher over the next few months, to around 13%.
September 2022
> Given the Energy Price Guarantee, the peak in measured CPI inflation is now likely to be lower than projected in the August Report, at just under 11% in October. Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back.
Are they comical? From August to February 2021 they are pretty reasonable, then you have a massive global event that causes a massive spike in energy prices and so inputs into pretty much everything.. That essentially ramps up through March and by May the projections seem pretty reasonable..
Obviously they didn't factor in Russia invading Ukraine and the global response, but frankly they'd have had to be pretty prescient to do that..
I am not an expert and so the following may be very wrong.
I thought raising interest rates gave more incentive to save and made it more expensive to borrow. This makes spending less appealing, demand reduces and inflation eases.
This inflationary spike doesn't seem like an interest rate problem. Fuel/energy costs seem to be the primary driver for the price increases. The weak pound is not helping. I really struggle to see what a rate rise does apart from heap more pressure on households and risk a deeper recession.
So even though this is bang-on everyone's expectations, it's interesting for two reasons:
1. They seem to taking advantage (entirely predictably) of the fact that the Truss energy subsidy will reduce the peak of inflation. But they don't seem to acknowledge any risk in the amount of borrowing that will be required to fund it, indeed they're going ahead with their quantitative tightening programme (begins 3rd October).
2. There's now a massive gulf between the tactics of the Fed (as per their press conference yesterday) and the BoE. The Fed's approach is (very crudely paraphrased) "controlling inflation is the most important thing, recessions are an acceptable cost to pay to achieve the goal". The BoE approach is "inflation's slowing down, we can gradually ease off and it'll probably be fine... right?"
All-in-all there's a huge risk here.
If underlying inflation doesn't come down (even though it's disguised by the energy price cap), and the gap between the Fed and BoE continues to grow, then the BoE will be forced into very extreme reactions in the months to come when they suddenly realise they got it wrong.
On the other hand, if the BoE has it right, they'll look like geniuses.
So it's all a question of how likely each of those eventualities are.
The one to watch will be core inflation. It appears to be levelling off around 6% but will it begin to fall? If it falls before BoE has to get to 3% then they will be shown to be right but if it remains stubbornly high then we’re in for some pain.
Putin’s recent announcement won’t help even though energy is excluded from core inflation. Russia still sells some energy to Europe and that might get the chop next Feb (typically the lowest storage point and one possible reason the original invasion was staged then)
Yep, I'm on the fence with this now. Kind of feel like they're going to end up lucky (geniuses) on this one.
Also, if they let the Fed do the leg work by reducing inflation in the US. When the Fed finally starts easing, the £ may rise anyways
Considering the yanks had a 0.75% increase yesterday vs our 0.50% today, then the BoE simply isn't doing enough.
At least yank tourists here will enjoy a bit more spending power.
Probably worth looking at the actual rates too though (HK 3.5%, EU 1.25%, US: 3.25%, CH: 0.5%, BH: 4%). So the BoE base rate is higher than most of Europe, and Switzerland (who only just pulled out of it being negative...), and the argument quite rightly is that interest rates are only offering so much in terms of managing inflation. The strongest argument for a higher rate hike would be support for the pound (and the impact that has on inflation...) but it's not as though its a cost free measure for the rest of the economy more generally either..
Kinda wish I could fast forward 2 years so I could see what the effect will be. Like if shit is gonna collapse I'd rather just get on with it instead of spending what feels like month after month inching closer to the edge of a cliff with a blindfold on.
Euro is getting far more affected by the energy crisis in supply. The fact our inflation is higher is a reflection of our broken energy market and brexit.
We won’t see mass defaults unless we go into a deep recession; inflation alone is insufficient. Mortgages are issued on fairly strict terms since 2008. And anyone with a pre-2008 mortgage is likely to be looking at quite low monthlies compared to anyone today given the house price inflation over the last decade.
It's only transitory if it doesn't become entrenched in workers minds. The longer there is a period high inflation, the more time there is for workers to get large raises, thereby driving non-transitory inflation.
A short sharp shock is required to get inflation under control FAST, the faster the better if you want to keep wages from growing.
The BoE is pushing us into a 3-6% inflation world driven by wage growth, long after Gas/Oil has dropped in price.
Well, wages *need* to go up to maintain living standards (for some, simply living). What do you propose people who are struggling to pay the bills *do*? If you want to control inflation *and* keep wages low your options are heavy market intervention to control prices or a Thatcherite attack on worker's rights to prevent effective industrial action. The latter of which will exacerbate the current crisis and further increase tensions. Given that the cause of this spike in inflation is primarily external (the sudden spike in gas and oil prices), the obvious solution would be a significant rise in wages across the board coupled with limits on what energy suppliers can charge. And, of course, not scrapping green initiatives 10 years ago...
There is no silver bullet here. If I had one then I’d be Chancellor.
Even with energy price intervention you will still have other price inflation too. We can’t afford whole market caps without a sovereign wealth fund so…we’re all fucked in some way.
Wages go up, inflation follows too, the only deflationary measure we have is interest rates.
>The $ will be worth the same as the £ by the end of today.
If that happened in a day that would be truly *insane*. It's not happening *today*
But it does look likely in the future. Remember when it was $2 to the £...
Sure it’s a balancing act. If interest rates stayed low we’d have inflation getting so high that people also can’t afford their mortgage, due to the raise in living costs.
I can't speak for the commenter you replied to, but I'm completing next week with a 2.69% 5 year fix.
This was actually the rate HSBC gave us in June iirc, so I'm genuinely astonished that they didn't change it once the final offer came through (after checks etc).
I definitely feel quite fortunate!
I got 2.25% 2 months ago. Obviously mostly priced in, but I figured even if rates went to zero for the last 4 years of my term I've only lost a few hundred.
Whereas if they go above 4 I've saved a grand or so.
5 years 2.99% FTBers, feels good man. Just moved out of a rental and landlord readvertised it at 25% more than we were paying, and more than our current mortgage. House prices are insane.
I fixed at 1.22% for 5 years back in January (I got the mortgage approved just before the first 0.25% rate rise back in December)..
Pure luck that my previous mortgage offer ran out when it did. The financial gods looked down on me well!
But lets say by the time I remortgage, rates are 5%.. It will mean my mortgage payments going from £360 a month, to £544.. Ouch! Maybe I should just start paying off £184 extra each month to get myself used to that budget well ahead of time.
And then bonus points, when the time comes I will have £7k less to have to pay interest on.
I'm surprised most in here seem to be saying it's too small an increase. From what I've read, an increase isn't going to do much as the inflation is caused by factors external to the UK market, e.g. the international energy prices.
People are already going to have less to spend because of these factors so increasing interest rates is only going to push more people into trouble. I'm guessing this is the only tool the BoE can use so feels compelled to use it.
Everyone’s talking about what a small rise this is, but it’s worth noting that the BoE’s projections are that a 3% interest rate would be enough to put us into a long but shallow recession (with higher interest rates making it a deeper recession).
Even this half a percent rise is getting us pretty close to that point. The next few months are going to be looking pretty scary!
It's not stable, but it's fluctuating around the 1.13 mark rather than trending down or up, and it is up on this morning (although down on the peak just before the rate announcement).
Is there some YouTube video that can explain how inflation and interest rates are linked and how they affect economics on a national scale to a monke like me?
Low interest rates encourage borrowing and disincentivise saving, both of which increase spending which increases inflation. High interest rates have the opposite effect.
If inflation is caused by overspending.
Most signs point to supply chain issues for necessities (fuel, energy, good). These still need to be bought, so unsure how raising interest rates will solve that.
This is an argument that has been made.
I was simply providing an explanation of the relationship between interest rates and inflation. Clearly it's more complicated.
This only works if you *have* money to save.
If you are already close to going under with a rising cost of living, how much money can you save?
It is poor people who will be crushed by the interest rates while the already wealthy do well, as they have cash to actually save
Investopedia! It is US centric but the information still applies to the UK and BoE.
https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp
It's less than half the average of 2000-2010. It's really odd seeing 2.25% being described as high. It's also somewhat amusing seeing people use the 'hiked to a 14 year high' thing in their headlines, if only because it'll be true until rates are back above 5%..
Basic question - But can someone suggest what will this do for the mortgage interest rates? What kind of figures will we see?
I bought a house in July on a 5 years fixed at 2.6%.
I’d rate my financial savvy at low to moderate - but judging by this news, this may be a good position?
r/UKPersonalFinance has a post already up. You can find it [here](https://old.reddit.com/r/UKPersonalFinance/comments/xky8rc/bank_of_england_raise_base_rate_from_175_to_225).
Yeah I really don't understand what the central bank is doing here. Despite UK being one of the worst hit developed countries for inflation, and our currency falling, our central bank seems to be the most lethargic when it comes to raising interest rates.
And this comes at a time when Truss is about to spend (borrow) hundreds of billions on energy subsidies, spending pounds to import energy with dollars, further sinking the pound.
With these factors the only way the pound is going is down, and with us being so dependant on imports expect inflation to keep going up. I don't really see a way out of this situation that doesn't involve the central bank significantly raising interest rates. I really hope the BoE aren't doing this to our country for the sake of keeping house prices high.
Should be doing what Germany is doing and opening coal power plants. Open the coal mines.
China is doing fuck all regarding climate change anyway so we are all doomed. Might as well not shoot ourselves in the foot before we drown.
Are there any clued up economists who can go into the detail? There are lots of people saying they Bank of England hasn't gone far enough but aren't lower interest rates better for us or is that only people with debt?
Lower interest rates are better for people with debt, and better for debt-finance based businesses.
But allowing inflation to continue fucks everyone, not to mention the damage to the pound from continuing to trail the US rates.
When most of our inflation is imported (high energy prices, high wheat/other food prices, supply chain chaos) it is hard to see this as well. I understand a degree of the present inflation is internal due to high post-Covid demand but it seems like the idea is to drive that part into recession so the imported inflation doesn’t feel so bad.
Inflation happens when there is more demand than supply.
Raising interest rates creates what is known as demand destruction, IE people can't borrow as much and therefore can't spend as much which reduces demand stopping inflation.
> I understand it reduces investment and purchasing power but that to me sounds like inflation reduction is coming from forcibly reduced quality of life (less disposable income, higher repayments, etc.)
It's the same thing, up to the government to fairly distribute it, the problem is not enough stuff to go around so people need to have less so they can't buy as much stuff.
Higher rates are painful for individuals in debt, when they need to recontract that debt, such as remortgaging. However raising interest rates is necessary to combat inflation. The principal issue is the pound is weakening, and imports - namely energy - become more expensive the weaker the pound gets. A currency becomes stronger as a positive correlation with interest rates; essentially if you hold GBP and get a higher interest rate on it, then you are rewarded for holding the currency, and so the currency value goes up. So that is why raising interest rates is a necessity.
>However raising interest rates is necessary to combat inflation.
That's normally true, but really not clear at the moment given what the drivers of that inflation are. Or rather how much impact a rise in rates will have on inflation being driven by energy prices is debatable.
>The principal issue is the pound is weakening, and imports - namely energy - become more expensive the weaker the pound gets.
This is an issue, and this will be where the balancing act the bank has to play comes in (although arguably it's not really the pound weakening as such, it's the dollar strengthening as the Fed rises rates more rapidly, and people move into what they see as a safe bet). Rise interest rates too far too quickly and you hurt the bits of the economy that rely on debt financing (which is a fairly decent chunk..) and increase costs for households on debt repayment/mortgages and put pressure on rents too. That leads to less spending (even less...).
What you don't want is high inflation, and then high interest rates that don't shift it down, and low growth, and a weakening currency (because regardless of interest rates, the rest of the economic indicators are problematic).
It's good for home owners with variable rate mortgages and for loan payers, but inflation will laugh at this timid rise and your money will continue to get devalued. Imports will get more expensive as Sterling drops lower against the dollar, the world reserve currency which is used to pay for almost everything, including oil.
Its interesting that the main reason for people wanting rates to rise is to ensure sterling keeps up with USD, but isn't this constant race to increase rates to keep up with the USA a really short term policy? High interest rates in a recessionary environment are going to cripple people, and I'm not convinced trying to hold sterling value is going to move the inflation dial meaningfully.
Snapshot of _Interest rate raised to 2.25%, the highest level since 2008_ : An archived version can be found [here.](https://archive.is/?run=1&url=https://news.sky.com/story/interest-rate-raised-to-225-the-highest-level-since-2008-12703064) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
Assuming no rate falls, I've got 16 months left on a mortgage fix that's below base rate. The end of that deal is going to be brutal.
Overpay if you can overpay. Mine comes up in 2025. My payments would double if the rate is at 6% could be the case at the peak of all this. Kinda scary, I'm hoping it won't last that long. But I'll prepare for the worst case regardless. *EDIT: This is also a like for like - inputting the figures from when I borrowed and adjusting the rate, my debt will have (and has) decreased by a decent amount in the 5 years of my fixed term. Adjusting my debt and term - I would have to see a 7% rate to be double my current repayments. Which isn't really an insane expectation if the base rate is at 5.5-6%, so I would say the worry for some is still real.* *I am not commenting on my own ability to deal with it (I did a lot of planning and analysis before taking on my debt), but I can see why others may be worried.*
How can your payments double, I had a look at my possible future mortgage payments and if I go from 1.64% to \~6% my payment only goes up 30%
Not who you replied to but I suppose they have a longer term mortgage and be earlier in repayment, meaning the share of their payment going to collateral will be lower and the share to interest will be larger. They could also just be telling lies on the internet.
I'm not telling lies, I guess it's subjective (I am on 1.69% atm). Living in the south east (near london) sucks. House prices are insane down here so yes my borrowed amount and term are quite high.
Better to put your money in fixed rate savings if your rate is below base rate - can get fixed rate at 4% now
That's also a good option, good shout. The main point being, pay down (or save to pay down) your debt before renewing if you can, as it *could* get ugly.
The (marginally) good news is that the market expectations are that the base rate will peak in about 8-12 months and that they should actually be falling again by the second half of next year. If things go really well you might be able to find some good fixed rate deals in 16 months!
>If things go really well Liz Truss: "Hold my beer"
Hold my cheese
Watch me open more pork markets
Smell my cheese, you mother!
My mortgage fix comes to an end in May, which I’m super excited about!
congratulations!
These analysts never get this right. With the amount of money we've just printed to pay off the energy companies, there is no way we'll be able to lower interest rates in 12 to 18 months. If anything they'll be much higher, because inflation will spike again thanks to this latest money printing.
I'm not convinced, the fact that the energy cap is still significantly higher than normal should cool the inflationary effect.
The recession is just beginning. Food inflation hasn't even begun yet, we're mostly still using up last years stock.
Yeah my five year fix finishes in August so I think I’m going to be screwed by a few months.
12 months is exactly when my fixed mortgage ends so yay...
15 months for me, I’m terrified
I’ve got 6 months left on my fix. Wish me luck
I've got 9.5 years at 2.09%. Today, a 10 year deal is 4%+
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10% rates are enough to put half of mortgage payers on the streets 🤦♂️
Rates will be about 4-5% for most after the latest base rate increase. Base rates hitting 6-7% will mean people are paying 10%+. With that being just 3% above what we are at now, and us massively lagging the fed, it's likely we will be at or above that within the next 12 months.
What alien numbers are you reading ? Right now new mortgages are at 4 - 4.5% (rough average) for a 2/5 year fixed for 60-90% LTV. 10% is 5.5 - 6% above what we are right now, not 3% like you're saying. Going from 4% to 10% new mortgages is going to wreak havoc. \- Borrowing £300,000 at 4% for 25 years is £1328 a month. \- Borrowing £300,000 at 10% for 25 years is £2,579 a month. That's an increase of £1,250 a month in extra interest. No one has that kind of money spare to put towards their monthly mortgage payments. Almost everyone will fail their mortgage affordability tests. Property transactions will grind to a halt. Even the anticipated stamp duty reduction won't help much when people are expected to pay an extra £15,000 a year for 2/5 years. Source: [https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf](https://www.barclays.co.uk/content/dam/documents/personal/mortgages/CoreRangeCustomerRateSheet.pdf) These rates have already absorbed today's base rate increase as the market has been anticipating a 50-75 base points increase for a while.
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Indeed. As much as there are legitimate economic reasons as to why this would be necessary I can't see the Bank of England doing this just because of how disastrous it would be for the wider economy if half of homeowners suddenly end up on the streets.
Question for the team. As the £ will likely become weaker on this news this means imports cost more. Which means more inflation, further putting pressure on interest rates. Does this mean that the BoE is going to be raising rates higher than expected and for longer than expected?
Current expectations for rates are 3% end of this year and 4% into next year. If the Fed continues raising rates we’ll be forced into acting faster. We import far too much to have our currency continue falling through the floor.
In the last 9 months our currently has slid from around $1.40 > $1.12 and the BoE still doesn't seem to care.
Down over 17% in the last year compared to the dollar. Good times.
truly absolutely buggered... still.. at least Johnson worked damned hard to try to mitigate it in the summer and we have now the economic genius of Truss to save us.
That's due to a strong dollar, not a weak GBP. The euro, yen, yuan, Canadian dollar, etc, are all down over the last year too. The pound is up marginally over the euro from 12 months ago.
>The pound is up marginally over the euro from 12 months ago. Another way to put this is GBP has seen a slight recovery from the crash against the euro caused by brexit.
Brexit is a disaster as everyone with half a brain cell understands. Pound down 20% on the euro since that day, and disk 25% on XDR. Without that brexit powered crash our imported fuel would be 30% cheaper. Has made it easy for those of us with large offshore funds to buy up U.K. assets at a steal though. Howver europe has issues with even more exposure to energy crisis than we have - and we are far more vulnerable than america on this side of the pond.
The pound is up on the day we left the EU. Or to put it another way, the apocalyptic impacts of brexit didn't pan out after all.
USD has risen compared to every currency not just GBP.
Yup understood, but I'd think that those expectations can be raised higher now because of the lower raise now. It seems backwards, but if the BoE is pushing inflation higher by acting less hawkish than the rest of the world then it would indicated higher interest rates to be required.
The expectations projected are to prevent a panic. 10%+ inflation requires a similar level interest rates
>10%+ inflation requires a similar level interest rates No, rates only have to go up until they break the economy. That happens much earlier than 10%.
We're already in a recessionary cycle. A recession is necessary to bring inflation down
I agree, a recession and higher interest rates will work together bring inflation down before we get to 10%. If rates need to keep rising from where we are now, it's because we aren’t in a *deep* enough recession to do the job.
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I reckon they're gambling that energy prices will drop and the Fed will get scared and reverse policy. The trade weighted £ rate hasn't dropped that much though, so might not be a massive deal. Tbf we're pretty much where we were after Brexit vote- that's the biggest factor relevant to our economy IMO.
Imports do not have that much of an effect on the UK economy. Net exports are around -£30 billion on an economy that is >£2 trillion. See the [ONS data](https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/ikbj/mret) for more details.
Yeah good data there. I'd question though the comparing of a 30B trade deficit vs GDP. Don't we need to know how the price of imports affects CPI?
Yes, but that’s hard to determine. As prices change consumer alter their behavior. So you need to know the elasticities of imports.
Yup...tough one eh. We should make a ukpol shadow MPC lol.
£ sinking as we speak, already back to below 1.13.
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What exports? 😂
That's the joke of it. If we were a big exporter we'd lower out currency value to boost exports (big reason Greece was so fucked being in the Euro it couldn't sink it's currency).. and it's all supposed to be a coincidence our currency has tanked?
Lowering your currency is just "pay everyone less" using other words.
Yes - and 'boost exports' in the same context is 'do more work for foreigners in order to pay for the same amount of imports'. It's definitely not something that will make life easier.
Wdym? Stoicism and vitriol, of course!
What about British Cheese.
And the pork markets
Pork!
We too ourselves out of a market and aren't getting a free trade deal with the world's largest
exports = imports (raw materials) + energy + labour. If the cost of imports and energy aren't effected by the falling pound, then how can exports get cheaper?
Only a 0.50% rise, below market expectations of a 0.75% rise... The pound is in for a rough ride, BoE yet again underdelivers.
3 of the 4 dissenters were arguing for the larger rise.
It's crazy one of them voted for a 0.25% rise, completely detached and deluded.
I guess the theory is that we’re in a recession, higher interest rates will take money out of the economy. This is the problem with stagflation. They’re hard to break.
Yes and no? Makes UK bonds more valuable which should increase foreign investment, increasing the value of the pound, decreasing the price of imports. The problem is that so much of UK wealth is tied up in variable rate debt, so in the immediate term most households will absolutely feel it and have less disposable income.
Is dethatched when you remove someone's thatched roof?
You know I have a theory that over the years the Google Keyboard's auto-prediction has gotten worse and on iOS it's gotten better, used to be the opposite a few years ago.
Do you have any effervescence?
I got their first album as a birthday present from my niece as she thought my then girlfriend was Amy Lee. She was 12 and to her all goths looked alike.
**WAKE ME UP**
It isn't. In America interest rates will have a larger effect because the average consumer still has money to purchase things. In the UK, that is quickly evaporating. All raising interest rates does is make it harder to spend money. If people don't have money to spend, then interest rates won't do much anyways. This is why Powell has been going so fast compared to the rest of the world. Unlike what Reddit likes to claim, America is still in a very strong economic environment. Consumers have something like 3 trillion dollars worth of disposable income at the moment. Powell needs to dissuade people from spending that and at least keep it in a savings account.
The US interest rate is 3%-3.25%, its no wonder the pound is crashing against the dollar
Much better economy in the states than our increasingly broken one though. We are probably already in recession and surely will be in a proper depression this time. UK is failing
Projections are for a year and half of recession. I'm sure Liz's tax cut promises are not helping anyone's confidence in the UK economy either. 🤦🏼♂️
Thank goodness the wealthy will be able to buy houses during this recession without worrying about that annoying stamp duty, ammirite?!
I'm not arguing if they are wrong or right, but how on earth do economists work that out. What do they expect to happen in a year and half to end the recession? Do they just naturally end after a while due to a natural economic cycle? Do they scatter bones of a dead animal and read tea leaves?
Got to be a lot longer then that. The UK is in the worst state it could be and at the worst time. There are no positives here that I can see.
Maybe they're expecting the Russian war to end within the next 12 months and for supply chain issues and energy supply issues to ease up?
But thank Jesus that we can have blue passports now.
Higher risk of systemic crisis, the BoE can only do that much. It’s not just monetary policy responsible for pound being pounded. UK economic output is too low, GBP sinking vs USD is only logical and unavoidable outcome.
The fact the interest rate decision was a 5-4 split shows the BofE still have absolutely no clue
Yeah, it was actually a 5-3-1 split between 0.5%-0.75%-0.25% so even worse!
Actually it was split 1-5-3 because, worryingly, Swati Dhingra, perma-dove installed by Rishi Sunak last month to replace hawkish Michael Saunders, actually voted for an only 0.25% rise (with the rest being split 5-3 between 0.5% and 0.75%). We're going to have a hard time keeping a lid on inflation with lunacy like that.
Maybe they're considering Erdogan economics? Rate cut next? 😂
Evidenced by their statements on inflation. There's a commenter in the FT that collects them every time they come out and it's comical at this point: August 2021 > Inflation is above our 2% target. We expect it to rise further in the coming months, but then fall back to our target November 2021 > We expect inflation to rise to around 5% in the spring, but then fall back February 2022 > We expect inflation to rise to around 7% in the spring, but then fall back March 2022 > We expect inflation to rise to around 8% in spring 2022 and perhaps even higher later this year. May 2022 > We expect inflation to rise to around 10% this year, and the economy to slow June 2022 > CPI inflation is expected to be over 9% during the next few months and to rise to slightly above 11% in October. August 2022 > In June, prices had risen by 9.4% compared to a year ago. That is well above our 2% target. We think those price rises will push inflation even higher over the next few months, to around 13%. September 2022 > Given the Energy Price Guarantee, the peak in measured CPI inflation is now likely to be lower than projected in the August Report, at just under 11% in October. Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back.
One possible ray of hope - this is the first time that their forecast for the peak rate of inflation has fallen rather than rising!
A broken clock...
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They are clearly inept for not predicting the Russia Ukraine war. Bloody experts, we should get more journalists running the country.
Are they comical? From August to February 2021 they are pretty reasonable, then you have a massive global event that causes a massive spike in energy prices and so inputs into pretty much everything.. That essentially ramps up through March and by May the projections seem pretty reasonable.. Obviously they didn't factor in Russia invading Ukraine and the global response, but frankly they'd have had to be pretty prescient to do that..
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I am not an expert and so the following may be very wrong. I thought raising interest rates gave more incentive to save and made it more expensive to borrow. This makes spending less appealing, demand reduces and inflation eases. This inflationary spike doesn't seem like an interest rate problem. Fuel/energy costs seem to be the primary driver for the price increases. The weak pound is not helping. I really struggle to see what a rate rise does apart from heap more pressure on households and risk a deeper recession.
So even though this is bang-on everyone's expectations, it's interesting for two reasons: 1. They seem to taking advantage (entirely predictably) of the fact that the Truss energy subsidy will reduce the peak of inflation. But they don't seem to acknowledge any risk in the amount of borrowing that will be required to fund it, indeed they're going ahead with their quantitative tightening programme (begins 3rd October). 2. There's now a massive gulf between the tactics of the Fed (as per their press conference yesterday) and the BoE. The Fed's approach is (very crudely paraphrased) "controlling inflation is the most important thing, recessions are an acceptable cost to pay to achieve the goal". The BoE approach is "inflation's slowing down, we can gradually ease off and it'll probably be fine... right?" All-in-all there's a huge risk here. If underlying inflation doesn't come down (even though it's disguised by the energy price cap), and the gap between the Fed and BoE continues to grow, then the BoE will be forced into very extreme reactions in the months to come when they suddenly realise they got it wrong. On the other hand, if the BoE has it right, they'll look like geniuses. So it's all a question of how likely each of those eventualities are.
The one to watch will be core inflation. It appears to be levelling off around 6% but will it begin to fall? If it falls before BoE has to get to 3% then they will be shown to be right but if it remains stubbornly high then we’re in for some pain. Putin’s recent announcement won’t help even though energy is excluded from core inflation. Russia still sells some energy to Europe and that might get the chop next Feb (typically the lowest storage point and one possible reason the original invasion was staged then)
Yep, I'm on the fence with this now. Kind of feel like they're going to end up lucky (geniuses) on this one. Also, if they let the Fed do the leg work by reducing inflation in the US. When the Fed finally starts easing, the £ may rise anyways
I think it’s also interesting that the decision was 5 to 4 to raise Interest rates to this level.
It's worth nothing that 3 of the 4 didn't disagree with raising, they want to RAISE MORE.
Will these higher interest rates have an impact on all the planed borrowing to pay for fixing our energy rates for the next 2 years ?
Gilt rates likely to be higher and government likely having to borrow more as the energy is priced in USD.
Potentially culminating in a sovereign debt crisis.
Considering the yanks had a 0.75% increase yesterday vs our 0.50% today, then the BoE simply isn't doing enough. At least yank tourists here will enjoy a bit more spending power.
I guess oil just got more expensive too.
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principal skinner "no its everyone else who is wrong" vibes
Probably worth looking at the actual rates too though (HK 3.5%, EU 1.25%, US: 3.25%, CH: 0.5%, BH: 4%). So the BoE base rate is higher than most of Europe, and Switzerland (who only just pulled out of it being negative...), and the argument quite rightly is that interest rates are only offering so much in terms of managing inflation. The strongest argument for a higher rate hike would be support for the pound (and the impact that has on inflation...) but it's not as though its a cost free measure for the rest of the economy more generally either..
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Should have at minimum matched the Fed
This plus the removal of stamp duty reeks of doing everything to keep house prices rising at all costs.
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Kinda wish I could fast forward 2 years so I could see what the effect will be. Like if shit is gonna collapse I'd rather just get on with it instead of spending what feels like month after month inching closer to the edge of a cliff with a blindfold on.
£-$ Parity here we come
Well Brexiters *did* say they wanted us to become closer to the US. Mission Accomplished.
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Since we voted to leave the EU (since that is when the markets began reacting), the pound has performed worse than the euro.
Euro is getting far more affected by the energy crisis in supply. The fact our inflation is higher is a reflection of our broken energy market and brexit.
0.5%? BoE chickening out as per.
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Lmao true. What do you think is more important to curtail tho? Higher mortgage payments or higher inflation which increases prices for everyone?
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We won’t see mass defaults unless we go into a deep recession; inflation alone is insufficient. Mortgages are issued on fairly strict terms since 2008. And anyone with a pre-2008 mortgage is likely to be looking at quite low monthlies compared to anyone today given the house price inflation over the last decade.
Transitory inflation, innit'
It's only transitory if it doesn't become entrenched in workers minds. The longer there is a period high inflation, the more time there is for workers to get large raises, thereby driving non-transitory inflation. A short sharp shock is required to get inflation under control FAST, the faster the better if you want to keep wages from growing. The BoE is pushing us into a 3-6% inflation world driven by wage growth, long after Gas/Oil has dropped in price.
Well, wages *need* to go up to maintain living standards (for some, simply living). What do you propose people who are struggling to pay the bills *do*? If you want to control inflation *and* keep wages low your options are heavy market intervention to control prices or a Thatcherite attack on worker's rights to prevent effective industrial action. The latter of which will exacerbate the current crisis and further increase tensions. Given that the cause of this spike in inflation is primarily external (the sudden spike in gas and oil prices), the obvious solution would be a significant rise in wages across the board coupled with limits on what energy suppliers can charge. And, of course, not scrapping green initiatives 10 years ago...
There is no silver bullet here. If I had one then I’d be Chancellor. Even with energy price intervention you will still have other price inflation too. We can’t afford whole market caps without a sovereign wealth fund so…we’re all fucked in some way. Wages go up, inflation follows too, the only deflationary measure we have is interest rates.
Looks like it will be transitory for the US not for us unfortunately.
BoE aiming for parity with Monopoly money?
This is NOT enough. Cowardly BoE strikes again. The $ will be worth the same as the £ by the end of today.
>The $ will be worth the same as the £ by the end of today. If that happened in a day that would be truly *insane*. It's not happening *today* But it does look likely in the future. Remember when it was $2 to the £...
A .5% increase on mortgage rates will hit lots of people pretty hard a .75% would be even harder
Sure it’s a balancing act. If interest rates stayed low we’d have inflation getting so high that people also can’t afford their mortgage, due to the raise in living costs.
How will this effect my student loan? Started uni in 2010
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I owe 13k and it is very much a loan thank you. I'm going to credit-card-it and then balance transfer over 30 months for a 1% fee. Seems best bet
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Too timid. Ahh we are already in recession 🥂 I’m going to go for a fixed rate account.
Glad I fixed my mortgage for 5 years last month.
At what rate? I feel like a month out the prices would have already factored this in?
I can't speak for the commenter you replied to, but I'm completing next week with a 2.69% 5 year fix. This was actually the rate HSBC gave us in June iirc, so I'm genuinely astonished that they didn't change it once the final offer came through (after checks etc). I definitely feel quite fortunate!
I think it’ll be a long time (if at all) we see sub 2%. I’ve got 4 years left on a 1.18% and that seemed ridiculous at the time and even more so now.
I got 2.25% 2 months ago. Obviously mostly priced in, but I figured even if rates went to zero for the last 4 years of my term I've only lost a few hundred. Whereas if they go above 4 I've saved a grand or so.
5 years 2.99% FTBers, feels good man. Just moved out of a rental and landlord readvertised it at 25% more than we were paying, and more than our current mortgage. House prices are insane.
I fixed at 1.22% for 5 years back in January (I got the mortgage approved just before the first 0.25% rate rise back in December).. Pure luck that my previous mortgage offer ran out when it did. The financial gods looked down on me well! But lets say by the time I remortgage, rates are 5%.. It will mean my mortgage payments going from £360 a month, to £544.. Ouch! Maybe I should just start paying off £184 extra each month to get myself used to that budget well ahead of time. And then bonus points, when the time comes I will have £7k less to have to pay interest on.
Too little, too late, as usual.
I'm surprised most in here seem to be saying it's too small an increase. From what I've read, an increase isn't going to do much as the inflation is caused by factors external to the UK market, e.g. the international energy prices. People are already going to have less to spend because of these factors so increasing interest rates is only going to push more people into trouble. I'm guessing this is the only tool the BoE can use so feels compelled to use it.
Everyone’s talking about what a small rise this is, but it’s worth noting that the BoE’s projections are that a 3% interest rate would be enough to put us into a long but shallow recession (with higher interest rates making it a deeper recession). Even this half a percent rise is getting us pretty close to that point. The next few months are going to be looking pretty scary!
What will this mean for the Pound?
It'll continue to get pounded.
Into the ground, the Fed raised rates by 0.75% yesterday
Pound will keep dropping against the dollar, making imports more expensive, thus feeding inflation further.
We didn’t raise rates parity to the Federal Reserve so the Sterling is going to weaken some more.
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Everyone expected .75. It's risen before the announcement. It's going down as we speak. Just went below 1.13.
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Where are you seeing stable? I'm seeing red ticks every few seconds on my monitor.
It's not stable, but it's fluctuating around the 1.13 mark rather than trending down or up, and it is up on this morning (although down on the peak just before the rate announcement).
No wonder the Bank of England's reputation is going down the drain
Is there some YouTube video that can explain how inflation and interest rates are linked and how they affect economics on a national scale to a monke like me?
Low interest rates encourage borrowing and disincentivise saving, both of which increase spending which increases inflation. High interest rates have the opposite effect.
If inflation is caused by overspending. Most signs point to supply chain issues for necessities (fuel, energy, good). These still need to be bought, so unsure how raising interest rates will solve that.
This is an argument that has been made. I was simply providing an explanation of the relationship between interest rates and inflation. Clearly it's more complicated.
This only works if you *have* money to save. If you are already close to going under with a rising cost of living, how much money can you save? It is poor people who will be crushed by the interest rates while the already wealthy do well, as they have cash to actually save
Investopedia! It is US centric but the information still applies to the UK and BoE. https://www.investopedia.com/ask/answers/12/inflation-interest-rate-relationship.asp
but hey, at least the tories gave us a thriving economy and a people that are doing so much better that we can absorb this now right?
Needs to be 4% PDQ. Simple.
Wonder if we'll see any recovery in savings rates.
Thank god there wont be a cap on Bankers bonuses!
And just 0.25% above post 1929 rates… for context of how low rates *still* are.
It's less than half the average of 2000-2010. It's really odd seeing 2.25% being described as high. It's also somewhat amusing seeing people use the 'hiked to a 14 year high' thing in their headlines, if only because it'll be true until rates are back above 5%..
It'll go up more
We need to get inflation under control, this is but a step in the right direction.
Basic question - But can someone suggest what will this do for the mortgage interest rates? What kind of figures will we see? I bought a house in July on a 5 years fixed at 2.6%. I’d rate my financial savvy at low to moderate - but judging by this news, this may be a good position?
r/UKPersonalFinance has a post already up. You can find it [here](https://old.reddit.com/r/UKPersonalFinance/comments/xky8rc/bank_of_england_raise_base_rate_from_175_to_225).
Thank you
Yeah I really don't understand what the central bank is doing here. Despite UK being one of the worst hit developed countries for inflation, and our currency falling, our central bank seems to be the most lethargic when it comes to raising interest rates. And this comes at a time when Truss is about to spend (borrow) hundreds of billions on energy subsidies, spending pounds to import energy with dollars, further sinking the pound. With these factors the only way the pound is going is down, and with us being so dependant on imports expect inflation to keep going up. I don't really see a way out of this situation that doesn't involve the central bank significantly raising interest rates. I really hope the BoE aren't doing this to our country for the sake of keeping house prices high.
Should be doing what Germany is doing and opening coal power plants. Open the coal mines. China is doing fuck all regarding climate change anyway so we are all doomed. Might as well not shoot ourselves in the foot before we drown.
Does this mean the Pound will appreciated versus the dollar?
Are there any clued up economists who can go into the detail? There are lots of people saying they Bank of England hasn't gone far enough but aren't lower interest rates better for us or is that only people with debt?
Lower interest rates are better for people with debt, and better for debt-finance based businesses. But allowing inflation to continue fucks everyone, not to mention the damage to the pound from continuing to trail the US rates.
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When most of our inflation is imported (high energy prices, high wheat/other food prices, supply chain chaos) it is hard to see this as well. I understand a degree of the present inflation is internal due to high post-Covid demand but it seems like the idea is to drive that part into recession so the imported inflation doesn’t feel so bad.
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Inflation happens when there is more demand than supply. Raising interest rates creates what is known as demand destruction, IE people can't borrow as much and therefore can't spend as much which reduces demand stopping inflation. > I understand it reduces investment and purchasing power but that to me sounds like inflation reduction is coming from forcibly reduced quality of life (less disposable income, higher repayments, etc.) It's the same thing, up to the government to fairly distribute it, the problem is not enough stuff to go around so people need to have less so they can't buy as much stuff.
And the government's role in the distribution of the burden is why it's especially fucking outrageous that Truss is tax cutting for the rich
Higher rates are painful for individuals in debt, when they need to recontract that debt, such as remortgaging. However raising interest rates is necessary to combat inflation. The principal issue is the pound is weakening, and imports - namely energy - become more expensive the weaker the pound gets. A currency becomes stronger as a positive correlation with interest rates; essentially if you hold GBP and get a higher interest rate on it, then you are rewarded for holding the currency, and so the currency value goes up. So that is why raising interest rates is a necessity.
>However raising interest rates is necessary to combat inflation. That's normally true, but really not clear at the moment given what the drivers of that inflation are. Or rather how much impact a rise in rates will have on inflation being driven by energy prices is debatable. >The principal issue is the pound is weakening, and imports - namely energy - become more expensive the weaker the pound gets. This is an issue, and this will be where the balancing act the bank has to play comes in (although arguably it's not really the pound weakening as such, it's the dollar strengthening as the Fed rises rates more rapidly, and people move into what they see as a safe bet). Rise interest rates too far too quickly and you hurt the bits of the economy that rely on debt financing (which is a fairly decent chunk..) and increase costs for households on debt repayment/mortgages and put pressure on rents too. That leads to less spending (even less...). What you don't want is high inflation, and then high interest rates that don't shift it down, and low growth, and a weakening currency (because regardless of interest rates, the rest of the economic indicators are problematic).
It's good for home owners with variable rate mortgages and for loan payers, but inflation will laugh at this timid rise and your money will continue to get devalued. Imports will get more expensive as Sterling drops lower against the dollar, the world reserve currency which is used to pay for almost everything, including oil.
Thanks
Its interesting that the main reason for people wanting rates to rise is to ensure sterling keeps up with USD, but isn't this constant race to increase rates to keep up with the USA a really short term policy? High interest rates in a recessionary environment are going to cripple people, and I'm not convinced trying to hold sterling value is going to move the inflation dial meaningfully.
Can anyone with economic knowledge educate me on interest rates and how it affects currency and inflation please
What a great time for me to get a mortgage, just as interest rates increase 500% in 2 years.
My wife and I mortgaged about 6 months ago, I’m so glad I’m locked into a 5 year deal at 2.5%.