Bank of England Base Rate Rises for the Thirteenth Time

Today, the Bank of England increased the Base Rate to curb core inflation. What does this mean for the money markets and your mortgage?

The Bank of England has increased the Base Rate (BBR) to 5% today. Earlier in the year, industry experts were unanimous in their predictions for just two Base Rate rises throughout 2023. However, recent activity and nervousness surrounding the money markets have meant today’s announcement will not come as a surprise, and is the thirteenth consecutive rise since December 2021.

Why has the Base Rate increased again?

Industry experts very much expected today’s Base Rate announcement following the surge of money market activity we have seen in the past few weeks. With core inflation much higher than expected and the ongoing difficulties surrounding the US debt ceiling, there has been a significant amount of nervousness surrounding the money markets, which has driven up SWAP rates.

Today’s increase comes as an attempt to continue to curb UK inflation and prevent core inflationary figures from rising any further. The primary concern from the money markets is that higher prices are becoming embedded across the UK economy. Today’s announcement should hopefully ease some pressure off the financial markets; however, it’s clear we’re not out of the woods just yet.

Will the Base Rate increase again this year?

As it currently stands, industry experts predict a further increase to the Base Rate at the MPC meeting in September, despite today’s surprising 0.5% increase. However, it is highly unlikely we will see the Base Rate decrease until late 2024 at the earliest.

What does this mean for mortgage interest rates?

As always, it’s important to remember that today’s increase to the Base Rate will not directly or immediately impact fixed mortgage interest rate pricing.

SWAP rates are what lenders must pay to other financial institutions to acquire fixed funding for a specific period of time. Activity and nervousness in the money markets drive up SWAP rates and, consequently, mortgage lenders’ cost of funds. Lenders will then have to increase pricing to maintain their profit margins.

It’s highly likely that most lenders will have already factored in today’s Base Rate rise in their fixed rate pricing and will therefore not need to make further changes.

However, for those on Base Rate trackers or some lender standard variable rates (SVRs), you can expect your monthly repayments to increase again from today.

With the expectation for a further increase in September, now really is the time to explore your options and see whether a new fixed-rate option could be more cost-effective for you. Mortgage interest rates are highly unlikely to decrease and many anticipate they will remain at the current levels for the next few years. Rest assured, there are plenty of competitive options are available on the market; speak to a whole-of-market mortgage broker to see what rates you can access.

Call us on 0345 345 6788 or submit an enquiry here to speak to an expert.

22nd June 2023