Speaking at the annual Mansion House dinner earlier this month, Andrew Bailey, Bank of England governor, said that a half percentage point increase was “among the choices on the table”. The base rate, which is currently at 1.25%, has risen five times already since December last year in a bid to curb spiralling inflation. A half point increase would push it up to 1.75%.
The Consumer Prices Index (CPI) measure of inflation reached 9.4% in the 12 months to June, according to the Office for National Statistics, with higher energy bills combined with rising petrol and diesel costs and steeper housing bills all helping push prices up at their fastest rate in 40 years.
Higher interest rates should help dampen inflation, as borrowing costs become steeper which tends to slow the economy down.
Recent polls among economists suggest that UK interest rates could reach 2% or even higher in the coming year, with three members of the Monetary Policy Committee having voted for a half point increase in June.
In a speech to thinktank the Resolution Foundation, Michael Saunders, one of the MPC members who wants a half point increase, said: “In broad terms, the MPC has to balance the risks and costs of tightening ‘too much, too soon’ versus ‘too little, too late’.
Are you protected against rising rates?If you’re on a variable rate mortgage, or haven’t reviewed your mortgage for a while, it’s important to think carefully about how you might cope financially with higher rates and steeper monthly mortgage costs.
There are still plenty of competitive fixed rate mortgage deals currently available, so if you’re worried about rising rates, and you don’t have hefty redemption charges to pay to leave your existing deal, you may want to consider locking into a fixed deal to protect yourself against further increases.
Bear in mind, however, that if rates continue to rise, you are likely to face higher monthly payments in future when your fixed deal end, so it’s worth reviewing your mortgage as soon as possible, The good news is that you can secure a deal up to 6 months in advance of your current mortgage deal ending, so you still have the opportunity to lock in to today’s rates.
Our online Mortgage Finder tool can help you search thousands of mortgages from across the market to find the right option for you.