The Bank of England has unveiled a 50 basis point (bps) rise in the base rate, bringing it up to 2.25 per cent.
The Bank of England’s Monetary Policy Committee (MPC) has announced a 50 bps increase in the base rate as it attempts to deal with spiralling inflation and a tumbling pound.
The figure now stands at 2.25 per cent. It follows last month’s similar increase. This marks the first time that the base rate has risen by 0.5 per cent over two consecutive months since December 1994.
The move means the Bank of England base rate is now at its highest since December 2008 when it was slashed from three per cent to two per cent due to the financial crisis.
The Bank started increasing the base rate in December 2021 after the rate had sat at a record low of 0.1 per cent since March 2020 when the pandemic began.
It has now risen for the seventh consecutive time.
The Monetary Policy Committee (MPC) voted 5-4 in favour of the uplift which, according to Alice Haine, Personal Finance Analyst at Bestinvest, “sends a strong signal that the Bank is serious about getting inflation back down to more palatable levels in the medium term, with three members voting for a more aggressive 0.75 per cent hike, as it looks to curb the worst bout of inflation in 40 years and edge closer to its target of two per cent.”
The Monetary Policy Committee was due to announce the base rate decision last week on 15 September, but it was delayed due to the death of the Queen.
The decision to put the base rate up to 2.25 per cent is an attempt to keep inflation under control. It currently stands at 9.9 per cent, against a target of two per cent.
Amid the current cost-of-living crisis, the rate hike will come as a blow to the two million homeowners with a variable rate mortgage who will see their payments increase.
Mortgage holders with a fixed rate won’t be affected by the rate rise yet, but they will find it more difficult to remortgage to a competitive fixed rate when their current fixed rate ends.