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Mortgages could go up again as BoE signals another possible interest rate rise

Nick Cheek
Written By:
Nick Cheek

After raising the base rate again last Thursday, a senior Bank of England policymaker has said that more increases are likely. And this would affect savers and borrowers alike.

Last week, the Bank of England’s Monetary Policy Committee (MPC) raised the base rate to 4%, the tenth consecutive increase. The move was widely expected and it took the rate to its highest level for more than 14 years. The last time it came close to this point was in October 2008, when it stood at 4.5%.

And, according to a senior policymaker at the MPC, the likelihood is that there will be further increases to get inflation under control.

Speaking in Budapest this morning, MPC member Catherine Mann noted that the Bank needed to ‘stay the course’, and intimated that another increase was likely.

She said: “If inflation indeed is more persistent, then bank rate will need to rise again after the pause, to be followed later with reversal.”

She added: “We need to stay the course, and in my view, the next step in bank rate is still more likely to be another hike than a cut or hold.”

Any further increases in the base rate are likely to hurt legions of mortgage holders, particularly those on standard variable and tracker mortgages.

Andrew Hagger, personal finance expert at Moneycomms, also noted that Thursday’s increase was unlikely to be the last and that further uplifts will only increase the pain on already stretched borrowers.

He said: “This tenth successive rate hike is unlikely to be the last in 2023 and will inflict further financial pain on borrowers – many of whom are already on their knees and simply unable to absorb any further cost increases.”

Agreement grows on future rises

Hagger is not the only expert who believes that further rate rises are on the way.

Sanjay Raja, senior economist at Deutsche Bank, said: “[We see] the MPC hiking only once more by 25bps in March. We also now see risks tilted to further (modest) rate increases in H2 2023.”

Paul Dales, chief UK economist Capital Economics, feels that rates may rise higher but across two separate increases.

He said: “We still think that rates may rise to 4.5% but perhaps via two 25bps increases rather than one 50bps rise. Either way, we think that lingering domestic inflation pressures will force the Bank to keep interest rates at their peak for all of this year.”

Meanwhile, James Smith, developed markets economist at ING, feels there will be one more increase but, like Mann, notes that there are unlikely to be cuts anytime soon.

He said: “We expect the Bank to pivot back to a 25bp rate hike in March but that’s likely to be it. However, unlike the Federal Reserve [in the US], it’s unlikely that the BoE will begin cutting rates later this year.”