Investment - Articles - Comments as Bank of England raise rates to 4%

Shweta Singh, Chief Economist, Marsh People and Investment said: “We see today’s increase primarily as a risk-management measure rather than the start of an aggressive rate-hiking cycle. Unless energy prices rise further and remain elevated for longer, we expect limited additional tightening. Market pricing therefore looks relatively hawkish. Although higher household energy bills in January are likely to weigh on growth, the underlying outlook is more resilient than it has been for some time. If inflationary risks do not broaden materially, we see scope for gilts to perform well as markets look beyond the current period of energy-related price pressure.” 

David Rees, Chief Economist at Schroders said: "The Bank of England has been reluctantly dragged into a global hiking cycle driven by imported energy inflation. But this is not the start of an aggressive tightening campaign. Ultimately domestic inflation remains relatively well behaved, and there is still slack in the economy. While growth and labour-market data have improved recently, we think UK interest rates will peak at 4.25% - well below the path currently priced by markets. The risks, however, are mounting. Energy prices have continued to grind higher, meaning inflation is likely to peak later and higher than previously expected, at around 4.5% next summer. The key question is whether this imported inflation shock remains contained, or will it start to feed into domestic wages and services prices. If the recent improvement in labour-market data continues, the Bank may be forced to act."

Jamie Page, Head of Distribution at The Exeter comments: “Today’s decision to raise the base rate for the first time in over three years adds further uncertainty for households already navigating a volatile mortgage market. With inflation at its highest in almost a year and lenders repricing deals in response to fluctuating swap rates, borrowers could face further pressure on their monthly finances as they continue to weigh up the impact of last week’s Budget. However, with remortgaging activity on the rise, there is also an opportunity for households to take stock of their wider finances and plan for the future. Advisers can play an important role in bringing income protection into these conversations, helping clients look beyond monthly repayments and consider how they could maintain their financial commitments if illness or injury disrupted their income.”

Dominic Grinstead, CEO at MetLife UK, comments: “The MPC’s decision to raise interest rates to 4% may be no shock for markets, but for homeowners already struggling with rising living costs, it adds further pressure to stretched household budgets. Keeping up with mortgage payments will become even harder for borrowers, and with incomes squeezed, many households are at risk of missing payments if their financial situations change. 39% of UK mortgage holders have no mortgage protection policy in place to cover them if they were unable to work, rising to 43% among women who own property. Protection insurance remains a valuable safety net even as costs rise elsewhere. We’d encourage mortgage holders to check what cover they already have in place, and speak with an adviser if they’re unsure.”