Interest base rate rises to 2.25%

Members of the Bank of England’s MPC (Monetary Policy Committee) have voted to increase the interest rate by 0.5%, taking it up to 2.25%. It’s worth noting, that five members of the committee voted to increase by 0.5%, three members voted to increase the rate by 0.75, and one member voted to increase it by 0.25.

The base rate is the seventh consecutive rise, and with the rate in August sitting at 1.75%. A 0.1 drop in GDP is also predicted over the current quarter, which would suggest that the UK is already in a recession. This follows a 0.1 drop that has already taken place, in the 3 months leading up to June.

The rise is an attempt by the bank to control rapidly rising levels of inflation, with a target of 2% having been set by the Government. UK inflation is currently at 9.9% and is expected to rise further.

This rise has also had a minimal effect on the Pound, with it being half a cent higher than the 37-year low that was hit yesterday (21 September) against the US Dollar, trading at just above $1.132.

Markets suggest that the rate could double to 5% next summer, with the Bank of England planning to assess the inflationary impact of the Chancellor’s “mini budget” in their November assessment to assess if that’s an accurate prediction.

Simon Webb, managing director of Capital Markets and Finance, commented: “Today’s hike in Bank of England base rate, while widely anticipated, still means they are the highest they’ve been for a generation.”

“There are many people for whom this will cause real financial hardship, particularly coming on top of escalating energy and food prices. Of particular concern are people who are coming to the end of a mortgage fixed rate term, who are facing huge leaps in their mortgage payments and mortgage prisoners who are often at the mercy of a lender’s rising standard variable rates. This rise leaves a lot of people increasingly vulnerable.”