The interest rate increase by the Bank of England came months before it was expected. Many had thought that despite the rising inflation rate the Monetary Policy Committee would hold off on raising the standard base rate until next year. This was especially so due to the rising number of Covid-19 cases in the UK. The impact of which could cause a slowdown of consumer spending. The increase from 0.1% to 0.25% is the first in more than three years.

While 0.25% is still extremely low in comparison to what used to be considered normal before the economic crisis, it should be noted that it is now more than double than the level it was only a day ago. 

Lenders were expected to follow suit quickly and they did, with many top lenders removing their lowest interest rate deals from the market and replacing them with offers more in line with the recent increase.

The increase was put into place, remarked Bank governor Andrew Bailey, in response to the intense rise in the UK inflation rate which is now at 5.1%. The Bank’s target rate is 2%. 

The inflation level is being impacted by the global pandemic. There are supply disruptions, shortage of workers, higher wholesale gas prices, and other factors. It is hoped that the interest rate increase will slow down the inflation growth which could in a matter of months reach toward 6%. If the rate does reach that level it will be the highest in 30 years.

However, many argue the inflation rate increase is not in response to normal economic situations and more due to the pandemic which could involve unknowns and cause any predictions or intentions to be off the mark. 

The increase was a surprise and though there were warnings of possible increases it was considered more of a preparation warning. 

Hopeful home buyers are not likely to be put off from the housing market due to the increase. They could feel a push toward buying to escape any increases that could occur sooner rather than later.

Homeowners, too, will likely be motivated and shop for a deal in response to the Bank’s action Thursday. There are opportunities to save money and they could lock in a low rate with a fixed rate remortgage and escape having to pay more should rates increase.

The standard base interest rate is no longer the lowest in the Bank’s 300 plus year history, but it is still historically low and it could be replaced with an even higher rate at the start of next year. The next MPC meeting is scheduled for Thursday, 3 February, 2022.