Advisers have warned that a further rise in interest rates today will have a detrimental effect on UK households.
The Bank of England’s monetary policy committee is due to meet today (May 11), and it is widely expected to raise interest rates by a quarter of a percentage point to 4.5 per cent.
Inflation eased slightly in March to 10.1 per cent, down from a peak of 11.1 per cent in October last year, but remains significantly higher than the central bank’s 2 per cent target.
In March, the BoE’s governor, Andrew Bailey, said the recent strains in the banking system will not stop the MPC from raising rates if inflation continues to stay high.
Bailey did acknowledge that the high base rate of interest is being felt by households and businesses across the UK.
“I am afraid that monetary policy cannot make the shocks to our national real income go away,” he said.
“But what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home.”
IFAs’ concerns
Riz Malik, director at R3 Mortgages, said while increasing interest rates may be a viable strategy to combat inflation, it is “crucial” to consider the wider implications of such actions.
“The repercussions of countless interest rate hikes have become painfully evident as the UK teeters on the brink of economic stagnation,” he said.
Justin Moy, managing director at EHF Mortgages, said this would be the right time for the BoE to “do nothing”.
“The markets are telling us all that rates can drop soon once inflation is under control, so to increase bank rate now seems a little pointless and just ebbs away at the confidence of borrowers, both individual and businesses.
“We need the 'good mood' of the coronation to continue up the road to the BoE.”
Craig Fish, director at Lodestone Mortgages and Protection, said we have not seen the result of the previous interest rate hikes.
“For once, I hope the MPC sees sense and pauses for breath, keeping rates on hold.
“We are slowly starting to see the green shoots of recovery and any rash decisions now will be harder to undo further down the line, so whilst I expect to see a 0.25 per cent increase, I hope that we don't.”
However, Ross McMillan, mortgage adviser at Blue Fish Mortgage Solutions, said it is difficult to see how any other outcomes than a rate rise can be expected.
“The headline inflation rate stubbornly refusing to drop by a significant amount does not allow the decision-makers any leeway,” he said.
“Until external international factors are addressed, such localised tinkering is unlikely to do anything more than load further financial pressure on individuals and families already struggling to make ends meet.”
