Bank move

Hopes of ‘peak rates’ as borrowing costs rise

Bank of England
The Bank’s rate-setting committee was divided over a rate rise (pic: Terry Murden)

Borrowing costs have been hiked for the 14th consecutive month amid hopes that the run of interest rate rises is nearing an end.

Base rate was raised to 5.25% after six of the Bank of England’s monetary policy committee voted for a quarter point rise. Two members wanted a half-point increase and one said there should be no increase.

The last time rates were this high was 15 years ago in April 2008. Though, this rise is smaller than the jump seen in July, which was a rise from 4.5% to 5%, suggesting that pressure for further increases is easing.

The accompanying Monetary Policy Report sets out weaker quarterly growth projections relative to its May Report, but does not expect a recession.

Phillip Nelson, research officer for Propertymark, the professional body for property agents, said: “An interest rate rise of only 0.25% has been widely anticipated since June’s inflation figures. Seeing this come to pass is a good sign that we will soon see interest rates peak.

“Peaking rates will be a positive sign for many homeowners, and even lays out some hope that fixed mortgage rates will start to fall.”

There are an estimated 115,000 Scottish households who are on standard variable rate mortgages and 85,000 on tracker loans. These fluctuate with the base rate set by the Bank of England. On top of that, there are a further 120,000 households in Scotland with fixed rate mortgages due to expire this year.

Many businesses already struggling with higher costs will be pushed to the brink. But policy makers say there is a need for prolonged pain to get inflation under control.

Andrew Bailey, governor of the Bank of England, said: “Inflation is falling and that’s good news. We know that inflation hits the least well off hardest and we need to make absolutely sure that it falls all the way back to the 2% target. That’s why we’ve raised rates to 5.25% today.”

Chancellor Jeremy Hunt said: “If we stick to the plan, the Bank forecasts inflation will be below 3% in a year’s time without the economy falling into a recession. 

“But that doesn’t mean it’s easy for families facing higher mortgage bills so we will continue to do what we can to help households.”

Laura Suter, head of personal finance at investment platform AJ Bell, said: “It might feel like madness to call peak interest rates when the Bank of England has just raised rates for the 14th time, and the market is still pricing in another couple of hikes from the Bank this year.

“But for consumers this could be peak interest rates, as banks and building societies have started cutting both savings and mortgage rates.

“Slowing inflation means that interest rates aren’t expected to rise by as much as they previously were – a few months ago we were expecting rates to peak at 6.5% but expectations now are 6% or even 5.75%.”

Construction activity slows

Scottish construction market activity has fallen for the third consecutive quarter with all subsectors now seeing either flat or falling workloads, according to the latest Royal Institution of Chartered Surveyors (RICS) Construction Monitor.

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