Bank of England increases Base Rate to 05%

Bank of England increases Base Rate to 05%

12:21 PM, 3rd February 2022, About 4 months ago 15

Text Size

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 5-4 to increase Bank Base Rate by 0.25 percentage points, to 0.5%.

The members of the committee that voted against actually wanted to increase the rate by 0.5 to 0.75%, so the Doves actually prevailed despite the increase. The MPC also voted in favour of unwinding Quantitative Easing by not reinvesting in government and corporate stock.

12 month CPI inflation increased to 5.4% in December, almost 1% higher than predicted in the November Report.

The Bank expects inflation to increase close to 6% in February and March, before peaking at around 7¼% in April. This projected peak is around 2% higher than expected in the November Report.

The current differential above the medium term inflation target of 2% reflects global energy and tradable goods prices. The further rise in energy futures prices meant that Ofgem’s utility price caps will be be substantially higher at the reset in April 2022.  In addition, core goods CPI inflation is also expected to rise further, due to the impact of global bottlenecks on tradable goods prices.

Projected pressures on CPI inflation are expected to dissipate, as global energy prices are assumed to remain constant after six months, and as global bottlenecks ease and tradable goods prices fall back. Underlying wage growth is also projected to ease from 2023, as the labour market loosens gradually and inflation declines.

Conditional on the rising implied path for Bank Rate and the MPC’s current forecasting convention for future energy prices, CPI inflation is projected to fall back to a little above the 2% target in two years’ time and to below the target by a greater margin in three years.

The MPC will consider beginning the process of actively selling UK government bonds only once the Bank Rate has risen to at least 1% and its preference in most circumstances is to use Bank Rate as its monetary lever on inflation.

The MPC judges that, if the economy develops broadly in line with the February Report central projections, some further Rate increases are likely to be appropriate in the coming months. The Committee continues to judge that there are two-sided risks around the medium-term inflation outlook, primarily from wage developments on the upside and from energy and global tradable goods prices on the downside.

Therefore, as a guide to rates beyond 1%, the answer is still to watch this space.



Comments

by Ann Shaw

12:28 PM, 3rd February 2022, About 4 months ago

With these continual accruing costs I now have to pass on these further costs as much as I can in the form of rental increases to the current marketable rate - I have historically left my rental rates well under the market rate. However, my hands are now forced and s13 statutory notices will be drafted this evening and sent to every tenant - With the talk of further inflation hitting 7% by Spring, ever-increasing costs, s24 and more interest rate rises on the way no doubt, it has become untenable to keep my rents under market rateable rates.

by Mark Alexander

12:49 PM, 3rd February 2022, About 4 months ago

For me, the rate rise equates to an average additional expense of £18 per month per property.

The calculation I used was total value of mortgages outstanding X 0.25% divided by the number of properties I own.

by dismayed landlord

12:54 PM, 3rd February 2022, About 4 months ago

Should have got the extra vote swung and made it .75%. Inflation is a grim for everyone. Slam on the brakes.

by Beaver

12:58 PM, 3rd February 2022, About 4 months ago

So as the RPI includes housing costs I'm guessing that the bank is taking account of the fact that increasing interest rates is also going to increase rents? And that increasing interest rates will fuel inflation? And that this will also depress disposable income?

by Mark Alexander

13:12 PM, 3rd February 2022, About 4 months ago

Reply to the comment left by dismayed landlord at 03/02/2022 - 12:54
I think this rate rise will go the opposite way and fuel inflation. Working households can only absorb so much extra expense before they start demanding a pay rise and that's what starts the spiral.

All business owners with debt will need to increase costs. This includes landlords having to raise rents.

by Gromit

13:14 PM, 3rd February 2022, About 4 months ago

The Governments solution to the "cost of living" crisis is to increase everyone's mortgages, and increase National Insurance. 🤔🤔🤔

by steve p

13:17 PM, 3rd February 2022, About 4 months ago

Reply to the comment left by Beaver at 03/02/2022 - 12:58
Sorry but did you give a rent reduction when the rates went down.. I really don't think its that big a deal I am used to rates at 5%+ and have always based my model on rates that high. If you thought rates would stay at 0.25% or lower for decades to come then your business model is massively flawed...

There is an alternative view also of inflation that it will eat away at that debt.

The big question will be will rents keep up with inflation, will the market tolerate rent increased in line with inflation? especially with other pressures like gas and food that renters are also having to contend with..

I do agree though there will be a shift away from landlords not giving rent rises and those that are massively below market rate will definitely feel like they have room to increase rents.

I think if inflation does stay high for an increased period there will be more pressure on wages to increase and more people will start to move jobs in search of higher pay..

by DSR

13:25 PM, 3rd February 2022, About 4 months ago

I have already raised rents via S13 so cant do again for another 12 months, but as soon as I can I will - have no choice. I cannot subsidise tenants. If they had a mortgage on their own home it would be no different. We all have to pay our way.

by dismayed landlord

13:50 PM, 3rd February 2022, About 4 months ago

you have a valid point Mark - but this is not the 1970's 80's anymore and there are differences in attitudes and the global response times to information. We are more than ever influenced by other factors in the world. I would find it sad if lessons were not learnt from history.
Dealing with high inflation is not difficult (been there and bought the t-shirt/video watched the film) but this is a different generation with diffrent parameters.
High inflation was always going to be the fall out from the last 2 years. The key is stopping it as it only benefits the rich. That would be all us filthy rich landlords. Joking aside it only widens the gap between well off and the less well off. Totally against the concpet of Gove's paper. If there is actually anything in there yet of substance.

by TrevL

15:35 PM, 3rd February 2022, About 4 months ago

Squeeky bum time!

1 2

Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

BECOME A MEMBER

Landlord Tax Planning Book Now