The Bank of England has raised interest rates by a half point to 5 per cent as it intensifies its efforts to tackle stubbornly-high inflation, adding to the strain on households struggling with soaring mortgage costs, according to a media report.
In what will be seen as a major move, the Bank’s monetary policy committee increased rates for the 13th consecutive time to the highest level since April 2008, The Guardian reported.
Before the decision was announced, financial markets were evenly split on whether the Bank would vote for a half-point rise or a smaller quarter-point increase, the report said.
The latest rise in borrowing costs comes after figures on Wednesday showed inflation remained unchanged at 8.7 per cent in May, driving expectations that the central bank would have no choice but to respond. Inflation was expected to fall to 8.4 per cent, which would still have been well above the Bank’s 2 per cent.
It also heaps further pressure on the government as UK Prime Minister Rishi Sunak faces calls to intervene to help mortgage holders struggling with soaring bills, either directly or by forcing lenders to be more lenient, The Guardian reported.
Many households were braced for a further jump in borrowing costs after high street lenders ramped up the cost of new home loans before Thursday’s rate decision.
Millions of mortgage holders are expected to face a sharp rise in their repayments after lenders drove the cost of a typical two-year fixed-rate home loan above 6 per cent the highest level since Liz Truss’s disastrous mini-budget last autumn.
Borrowing costs have risen steadily since the Bank first began raising rates from a record low of 0.1 per cent December 2021. More than a quarter of mortgage holders are expected to come to the end of cheap deals struck before this time leaving millions of people facing a “mortgage timebomb” of higher borrowing costs, The Guardian reported.
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