Bank of England interest rate rise – credit industry response

The Bank of England has raised interest rates from 2.25% to 3%. The increase is the biggest rise for 33 years, taking rates to their highest point since they were slashed during the financial crisis,  at the end of 2008.

Responding to the announcement, Jane Tully, Director of External Affairs and Partnerships at Money Advice Trust said “Household finances are facing a ‘perfect storm’ of both the damage done by high inflation, and now higher mortgage payments and rents, as landlords pass rate rises on. For millions of mortgage payers, the impact of recent rate rises are yet to be felt – meaning the worst is yet to come. Action is needed now to help people who are struggling. ” 

 “The government must urgently reform the Support for Mortgage Interest scheme to bring down the 39 week wait for support to 13 weeks, and extend eligibility to ensure support reaches people who need it. Early intervention is also crucial, and lenders need to be proactive in offering support to customers worried about their repayments.  

 Richard Lane, Director of External Affairs at StepChange Debt Charity, said “Rising rates are the price being paid for high inflation – and both create trouble for people experiencing problem debt. The cost of living is hitting everyone, but is especially hard for households on lower and fixed incomes, while rising rates have a dramatic effect on those mortgage holders rolling off fixed rates who have had little time to plan for much higher costs.”

“Current conditions prove the point that debt can affect anyone, and there is no cause for shame or embarrassment about it. We urge anyone feeling the strain to take action by contacting their creditors and a reputable debt advice organisation, who may be able to help in ways you don’t expect. For example, StepChange even has a dedicated mortgage debt advice team – no-one should feel that their situation puts them outside the realm of getting help, and it’s always better to take action on debt problems sooner rather than later.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “In the face of double-digit inflation, a looming recession, and the biggest interest rate rise for 33 years, today people are facing a nail-biting wait to find out what the Chancellor has in store in the now delayed Autumn Statement. The prevailing wisdom is that the UK consumer will be facing rising taxes and are already looking to find the best savings rates as they reduce spending and brace for what will undoubtedly be a challenging winter.”

“The Government’s decision to delay the Autumn Statement may have spared the Government from unhelpful Halloween headlines, but it looks to have also impacted the Bank of England, which has acted resolutely to increase interest rates to levels not seen since the turn of the century. People now face tough borrowing decisions, particularly those on lower incomes whose disposable incomes have been eroded thanks to increased food and fuel prices this year. Middle earners will also continue to feel the pinch as mortgage rates rise, compounded by the expectation of falling house prices.”

“Our advice to anyone who is worried about their finances, especially household bills or their home or car finance, is to reach out to their provider or lender for support. Lenders have a duty of care and are well equipped to help concerned customers through a wide range of options. The banks will be looking at measures to help customers in anticipation of difficult times ahead, but all would prefer to help customers through the dark days wherever possible.”

John Phillips, National Operations Director at Just Mortgages said “Given the current climate and the Bank of England’s mandate to keep inflation near 2 per-cent, many in the sector rightly predicted a further rate rise and by 0.75 per-cent. While the Bank of England may be stuck in limbo slightly ahead of the autumn budget, many lenders already priced in such a hike, which will negate any impact on current mortgage rates.”

“Nonetheless, this is a very challenging time for consumers, especially for those that need to move rather than want. While the changes in government have helped calm rates and brought more products and lenders back to market, those needing to upgrade, downsize, relocate or remortgage are still facing a real price shock and rise in household outgoings.”

“Our nationwide network regularly reports that the news of rate changes gives many homeowners the impetus to explore their options, assess their affordability and secure the best deal they can with sound financial advice. With the today’s announcement and continued uncertainty among your average homeowners, there’s no reason that won’t continue. Once again, brokers are best placed to provide that support and help homeowners navigate the changing market and demands of lenders.”

James Hickman, CCO of Ecospend, said “The Bank of England’s decision to raise interest rates today by 0.75% is the latest blow to UK businesses, many of which are already dealing with the effects of Covid-induced supply chain issues compounded by aggressive energy price inflation.”

“The combination of economic activity slowing and costs rising means businesses need to be able to cut costs in order to preserve margins and survive the squeeze.”

“With UK retailers predicted to pay just short of £5bn in fees for accepting card payments in 2022 alone, Open Banking payments can offer immediate relief.”

“Account-to-account payment solutions can help businesses avoid costly transaction fees, while improving the speed and simplicity of the process for consumers. Today’s interest rate decision is just another reason businesses should make this change now.”

Sarah Coles, Senior Personal Finance Analyst at Hargreaves Lansdown said “The Bank of England threw a black cloud over the UK economy today, shrouding it in gloom. It warned that we’re set for a miserable recession throughout next year and the first half of 2024. While this will dampen inflation, it will also pour a bucket of cold water on the labour market, so after such a long period of our wages falling behind inflation, we run the risk of losing those wages altogether.”

“The pain of inflation isn’t over yet. The Bank now expects it to be 11% in the last three months of this year, before dropping back from early 2023 as previous energy price hikes drop out of the calculations.”

“When it starts to fall, it isn’t going to make life any easier, because it’s going to be accompanied by recession. GDP is expected to fall about 0.75% during the second half of 2022, as higher energy prices put the squeeze on our disposable income. It’s then expected to keep falling through 2023, and the first half of 2024. Meanwhile wages will fall 0.25% behind rising prices this year and 1.5% behind in 2023, and the unemployment rate is forecast to hit 5.9% at the end of 2024 and 6.4% by the end of 2025 – up from 3.5% in the three months to August.”