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UK interest rate rise: Biggest hike in 14 years ‘to add £600 to some mortgages’

·19-min read

Some homeowners could see their annual mortgage costs increase by around £600 as a result of the Bank of England's interest rate rise, a trade association has warned.

UK Finance said mortgage borrowers whose deal directly tracks the base rate will see their payments increase by around £49 per month - or £600 per year - on average.

The figures also showed that a borrower sitting on their lender's standard variable rate (SVR) will typically see a monthly increase of just under £31, adding up to around £370 per year.

Nearly four-fifths (78 per cent) of residential mortgages outstanding are fixed rates, meaning these borrowers will not see the immediate impact of the Bank of England's base rate hike on Thursday from 1.75 per cent to 2.25 per cent - the highest level since November 2008.

But, if they have been safely locked into their home loan for a while, they may find they get a bill shock when they do eventually re-mortgage.

Key Points

  • Bank confirms 0.5% rise

  • Analysts expect hike of between 0.5% and 0.75%

  • Bank of England to raise interest rates

  • What are interest rates and why are they rising?

Good morning

08:53 , Matt Mathers

Good morning and welcome to The Independent’s rolling coverage of the Bank of England’s announcement on interest rates.

Analysts expect the rate to be hiked by at least 0.5 per cent, possibly 0.75 per cent, in what would be the biggest rise in some 30 years.

The Bank’s announcement is expected around midday. We’ll bring you all the latest news and reaction as it comes in.

What are interest rates and why are they rising?

08:58 , Matt Mathers

An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards of saving are.

If you are borrowing money, typically from a bank, the interest rate on that money is the amount you will be charged for borrowing it.

It is a charge on top of the total amount of the loan and will be shown as a percentage of the overall.

My colleague Holly Bancroft has more:

All you need to know about interest rates and how they affect you

BoE to raise interest rates

09:07 , Matt Mathers

The Bank of England had been due to make an announcement earlier in the month but this was postponed due to the Queen’s death.

Its monetary policy committee was scheduled meet yesterday to finalise the announcement, which is expected around midday.

Markets think the Bank will unveil the biggest hike in interest rates for over three decades.

August Graham reports:

Bank of England set for bumper interest rate hike

What are economists saying about the rate hike?

09:17 , Matt Mathers

"Investors think the most likely outcome is that the MPC will increase the Bank rate by 75bp (0.75 percentage points) on Thursday," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

But he said that economists are expecting a smaller rise, to 2.5 per cent - the same 0.5 percentage point change as the Bank's last hike.

"For a start, hawkish surprises from the MPC have been far less common than dovish ones over the last year," he said.

"In addition, governor Bailey openly referred to a 50bp hike ahead of the August meeting, but has not given markets a nudge to price-in a 75bp hike.

"We think that the MPC still will deem a 50bp increase to be consistent with its pledge to act 'forcefully', if it sees signs of more persistent inflationary pressures."

ING economist James Smith said that the Bank of England will have to react to recent falls in the price of the pound. Sterling hit a new 37-year low against the dollar on Friday.

"The Bank of England meeting is crucial," he said.

"It will tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the government's decision to cap household/business energy prices will translate into monetary policy."

"We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25 per cent, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it."

He said that rates will likely rise again in November and December, hitting 3 per cent by the end of the year.

Federal Reserve raises interest rates by 0.75% in latest move to stem inflation

09:38 , Matt Mathers

The UK is not the only country raising interest rates in a bid to curb soaring inflation, fuelled by Vladimir Putin’s war in Ukraine.

The Federal Reserve - the US’s central bank, similar to the Bank of England - hiked rates by 0.75 per cent for the third consecutive month.

The increase puts the short-term interest rate at the highest levels since before the 2008 financial crisis.

My colleague Andrew Feinberg reports:

Federal Reserve raises interest rates by 0.75% in latest move to stem inflation

Borrowers told to ‘buckle up’ ahead of expected interest rise

10:10 , Matt Mathers

A broker has warned borrowers to “buckle up” ahead of the Bank’s expected rise in interest rates.

Lewis Shaw, of broker Shaw Financial Services, said: “Borrowers should buckle up.

“The writing is on the wall for a significant Bank Rate rise and lenders have preemptively hiked rates, because they don't want to get caught short scrambling to re-price their deals.”

Former Bank committee member expects 0.75% hike

11:52 , Matt Mathers

A former member of the Bank’s monetary policy committee expects a rate rise of 0.75 per cent.

Sir John Gieve, who helped set interest rates between 2006 and 2009, spoke to the BBC earlier.

“I’m expecting interest rates to continue to rise in future meetings and I think the markets are generally expecting interest rates to rise to over 3 per cent by the end of this year,” he said.

Crypto market crashes towards yearly lows after interest rate hike

11:58 , Matt Mathers

Bitcoin and the broader crypto market have slumped close to yearly price lows on Thursday following a move by the US Federal Reserve to raise interest rates to their highest level in almost 15 years.

The interest rate hike was widely expected, meaning the cryptocurrency market downturn was not as bad as some analysts feared, though the Bank of England is also anticipated to raise rates on Thursday.

Anthony Cuthbertson reports:

Crypto market crashes towards yearly lows after interest rate hike

Bank hikes rate by 0.5 per cent

12:06 , Matt Mathers

The Bank of England has raised interest rates by 0.5 per cent in the biggest hike since 2008.

The Bank’s base rate is now 2.25 per cent - up from 1.75 per cent when the rate was last raised in August.

It is the seventh time in a row the base rate has risen and further increases are expected later in the year, with some analysts predicting a high 3 per cent by the end of the year.

My colleague Thomas Kingsley has more on this story below:

Interest rates rise by 0.5% as Bank of England says UK ‘already in recession’

Bank expects 0.1 drop in GDP over current quarter

12:08 , Matt Mathers

The Bank of England has said it now expects a 0.1 per cent fall in GDP over the current quarter, indicating that the country is already in a recession.

Three members of Bank committee voted for higher rise of 0.75 per cent

12:18 , Matt Mathers

Five members of the Bank of England’s monetary policy committee voted to raise its interest base rate from 1.75 per cent to 2.25 per cent while three voted for a steeper increase to 2.5 per cent, the Bank said.

It said that uncertainty in the outlook for energy prices has fallen after the government announced it would cap bills at £2,500 for the average household for two years.

The committee also voted unanimously to reduce quantitative easing by £80 billion over the next 12 months to £758 billion.

‘Be prepared to switch' banks

12:33 , Matt Mathers

Money Saving Expert Martin Lewis has told savers to be “prepared to switch” banks because many won’t pass on today’s rate rise to their customers.

Higher interest rates mean people earn more money on the cash they have in their saving accounts.

They also mean that mortgages can become more expensive.

Mr Lewis has this advice:

Inflation to peak at 11 per cent, Bank predicts

12:46 , Matt Mathers

Inflation could peak at 11 per cent, the Bank of England predicted in minutes accompanying today’s announcement on interest rates.

Officials on the monetary policy committee said prices would rise by less than expected in August and then peak in October.

The Bank previously estimated inflation would peak at 13 per cent. The government’s guarantee on energy bills was the reason for the more optimistic forecast.

However, the Bank warned that “energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back.”

Government’s ‘reckless’ borrowing putting up mortgage costs

12:58 , Matt Mathers

Liz Truss’s “reckless” borrowing plans to fund tax cuts are putting up mortgage costs, Labour has said.

Shadow chancellor Rachel Reeves accused the government of losing “control of the economy.”

“By putting such huge unfunded and uncosted sums on borrowing they’re pushing up mortgage costs for everyone,” Ms Reeves added.

“Their reckless approach is an immense risk to family finances.”

Ms Truss says tax cuts will grow the economy and raise more in revenue for the government.

Recap: How do interest rates affect inflation?

13:15 , Matt Mathers

An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards of saving are.

If you are borrowing money, typically from a bank, the interest rate on that money is the amount you will be charged for borrowing it.

It is a charge on top of the total amount of the loan and will be shown as a percentage of the overall.

My colleague Holly Bancroft reports:

All you need to know about interest rates and how they affect you

Government has ‘lost control of economy’

13:30 , Katy Clifton

Shadow chancellor Rachel Reeves said the rate rise “shows how this Tory government has lost control of the economy”.

“Their failure to foot any of their energy package with a windfall tax on the enormous profits of oil and gas producers is creating dangerous uncertainty,” she said.

“Their choice to put such huge unfunded and uncosted sums on borrowing will leave British taxpayers paying for years and are pushing up mortgage costs for everyone.

“The Tories’ reckless approach is an immense risk to family finances.”

No comment from No 10

13:45 , Katy Clifton

Downing Street declined to comment on the Bank of England’s decision to raise the interest base rate from 1.75 per cent to 2.25 per cent.

A Number 10 spokeswoman said: “That is obviously a matter for the independent Bank of England.

“I would point you to the support that we’ve set out to help people with the cost of living, which we know is a concern for families and businesses across the country.

“I’d point you to the support that we’re providing and the immediate assistance we’ve provided for energy bills in particular.”

Reason behind interest rates hike

14:00 , Katy Clifton

The Bank of England decided to up interest rates because energy bills will rise next month, despite significant government support for households, the Institute of Directors’s chief economist Kitty Ussher has said.

“Expectations of future inflation are still not where the Bank of England would like them to be.

“Many of our members think that the peak will come next year, and so may price accordingly, running the risk that inflationary expectations become self-fulfilling.

“Combined with imminent announcements of a Government stimulus package, plus some remaining – albeit smaller – upward pressure on CPI from household energy prices next month, the Bank of England has made the judgment that interest rates need to continue rising.

“However, the MPC also pointed to recent data showing the UK economy flatlining over the summer and early signs that labour vacancies may have peaked.

“This explains why most MPC members chose to raise rates at the lower end of market expectations rather than follow the US and eurozone and go for a higher 0.75 percentage point rise.

“The key question for the months ahead is whether inflation can be tamed without entering recession. With a Government determined to go for growth in a rising interest rate environment, that’s still all to play for.”

Economist Kitty Ussher

Interest rate rise means ‘pain’ for small firms

14:15 , Matt Mathers

The Federation of Small Businesses said the decision by the Bank of England to increase the base rate from 1.75 per cent to 2.25 per cent would add to the pressure on firms worrying about the cost of loans.

FSB chair Martin McTague said “the further pain it will cause many small businesses and self-employed people cannot be ignored”.

Urging the chancellor to cut business rates at Friday’s mini-Budget, he added: “Overhauling business rates, reversing the NICs increases, cutting fuel duty, and making sure more small businesses are not caught up in Corporation Tax would all be very welcome measures.”

Rate rise will add £600 to some mortgages

14:33 , Matt Mathers

Some homeowners could see their annual mortgage costs increase by around £600 as a result of the Bank of England‘s interest rate rise, a trade association has warned.

UK Finance said mortgage borrowers whose deal directly tracks the base rate will see their payments increase by around £49 per month - or £600 per year - on average.

The figures also showed that a borrower sitting on their lender’s standard variable rate (SVR) will typically see a monthly increase of just under £31, adding up to around £370 per year.

Nearly four-fifths (78 per cent) of residential mortgages outstanding are fixed rates, meaning these borrowers will not see the immediate impact of the Bank of England’s base rate hike on Thursday from 1.75 per cent to 2.25 per cent - the highest level since November 2008.

But, if they have been safely locked into their home loan for a while, they may find they get a bill shock when they do eventually re-mortgage.

All the cost of living help available and how to get the payments

15:01 , Matt Mathers

The rising cost of living is continuing to stretch budgets across the UK this winter, with warnings of more to come.

Energy bills are soaring, rents are increasing and inflation has hit record highs for several months in a row, all of which means living standards are forecast to tumble at their fastest pace since the 1950s as wages fail to keep up with rocketing prices.

My colleague Zoe Tidman takes a look at what help is available and how to get it:

All the cost of living help you may be entitled to and how to get the payments

Recession is Tories fault - Lib Dems

15:15 , Matt Mathers

The Conservative Party is to blame for UK’s recession, the Lib Dems have said.

Earlier the Bank of England said it expected GDP to drop 0.1 per cent over the current quarter, indicating the UK is in recession.

Responding to the news Ed Davey, the Lib Dem leader, said: “The blame for this recession lies squarely with Conservative MPs who have dithered for months and let the British people down.”

Suggesting the long Tory leadership campaign had delayed key moves, he said: “If urgent action had been taken months ago on energy bills and the cost of living crisis, then the UK economy wouldn’t be in this mess.”

“Instead, mortgage rates are spiralling, food prices are soaring and our country faces a grim winter recession with no real plan to get us out of it.”

Chancellor confirms NI increase will be reversed

15:35 , Matt Mathers

Chancellor Kwasi Kwarteng confirmed the national insurance increase which came into effect in April will be reversed from 6 November.

Ahead of his mini-budget on Friday, he said: "Taxing our way to prosperity has never worked. To raise living standards for all, we need to be unapologetic about growing our economy.

"Cutting tax is crucial to this - and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn."

The 1.25 percentage point increase in national insurance was announced by former chancellor Rishi Sunak to help fund health and social care.

Millions of mobile and broadband customers to see bills spike due to rate rise

16:00 , Matt Mathers

More than 13 million mobile and broadband customers could see their bills rise by £100 next year due to inflation-busting price hikes, Citizens Advice has warned.

The charity has found nine out of 10 broadband customers and seven out of 10 mobile customers are with providers who can hike prices halfway through a contract.

Many providers are set to increase prices up to 3.9 per cent beyond inflation.

Citizens Advice warned that with recent estimates putting inflation at 12.6 per cent in January, mid-contract price hikes will be much higher this year than in previous years, at a time when people are least able to manage them.

It found that one in three mobile and broadband customers facing price hikes has already cut back on everyday essentials such as food, energy and clothing.

It is calling for providers to axe the price rises, which it predicts could cost consumers £2.5 billion more next year.

The charity warned that access to mobile and broadband internet must remain affordable as most people rely on them for employment, managing benefits and staying in touch with loved ones.

Truss committed to 2019 manifesto, says No 10

16:35 , Tom Batchelor

Downing Street has insisted that the PM remains committed to the Conservatives’ 2019 election manifesto, despite Friday’s fiscal event set to mark a sharp break with the economic policies of the Johnson administration.

Asked if the Prime Minister saw the 2019 manifesto as redundant, the spokeswoman said “No.”

“I wouldn’t agree with that characterisation,” the spokeswoman said, when it was suggested the new government was deviating from the 2019 document.

Asked what parts of the manifesto Ms Truss is sticking to, the spokeswoman said: “I would point you back to what the PM has been setting out, and she’s been speaking at length this week from New York about her priorities for growing the economy, driving investment across all parts of the UK.

“And the action that we’re taking both in the long-term to support growing the economy and investment while in the meantime taking immediate action to support people with the cost of living.”

Downing Street says forecasts ‘fluctuate and change’ amid recession warning

17:10 , Tom Batchelor

Downing Street has said that forecasts can “fluctuate and change”, after the Bank of England indicated that it believes the economy is already in recession.

A Number 10 spokeswoman said: “The UK is not alone in facing slow growth, with Putin’s illegal invasion of Ukraine and weaponisation of energy presenting a global challenge for economies across the world.

“It’s not unusual for forecasts to fluctuate and change as further interventions are made. And that is why we are supporting households and businesses with high energy bills.

“This government has an unashamedly pro-growth agenda and the chancellor will be setting out more in his growth plan tomorrow.”

Government criticised over missing OBR forecast

17:45 , Tom Batchelor

The government should not announce major tax cuts without an independent economic forecast from the Office for Budget Responsibility, the head of a major economic think tank has warned.

Torsten Bell, the chief executive of the Resolution Foundation, said it is “almost inconceivable that any reasonable forecast from the OBR wouldn’t show debt rising throughout the forecast period.”

Speaking to MPs on the Treasury Select Committee he also criticised the government’s decision to tie the OBR’s hands.

“It is not a good idea to be announcing large, permanent tax cuts, without an underlying economic forecast,” he said.

Tax cuts won’t ‘spur huge revival in economic growth’

18:32 , Tom Batchelor

Neil Shearing, the chief economist at Capital Economics, has said that the cuts in national insurance and corporation tax, which are expected to come in the budget, will not grow the economy much.

“I think the framing of this has been slightly skewed actually. We’ve come off the back of 15 years of cripplingly low growth,” he told MPs on the Treasury Select Committee.

“What these tax cuts do is take tax rates back to where they were 18 months ago when growth was really low.

“So the idea that it’s suddenly going to spur this huge revival in economic growth I find difficult to believe.”

Chancellor’s plans fail to restore nature and cut climate-changing emissions, says FoE

19:10 , Tom Batchelor

Responding to the chancellor’s “vision for a new era for Britain” that he will set out in tomorrow’s mini-budget, Friends of the Earth’s head of policy, Mike Childs, said: “The chancellor’s mini-budget is yet another lost opportunity to lay out a plan to insulate the UK’s heat-leaking homes, and scale up cheap, clean onshore renewables so we can cut our use of costly gas and reduce energy bills for good.

“While many people will be relieved that their energy bills won’t be soaring as high as once forecast, around six million people will still be in fuel poverty this winter - almost double the number in 2021.“What’s also deeply worrying are plans to weaken environmental safeguards. The chancellor is treating economic growth and environmental protection as mutually exclusive, but they’re not. It’s this tired thinking that is driving the energy, climate and ecological crises we’re facing.

“We really needed this budget to ease the cost of living emergency, restore nature and cut the emissions that cause climate change, but it totally fails on all counts.”