Wondering about the recent upward trend of base rates since December 2021? Let’s explore the possible reasons behind these rises and uncover what the future holds for us.

The Bank of England’s decision to increase the base rate to 4.25% on Thursday was hardly a surprise. Until recently, there was a view among financial experts that the rate would stay the same, but then it was revealed that inflation went up to 10.4% in February, and experts subsequently predicted the increase.

The Bank of England is attempting to curb inflation by increasing the base rate. Raising the rate, of course, makes borrowing and some mortgages more expensive. The Bank of England is hoping that people will therefore borrow less and curb spending, and prices of food and other essential items will eventually come down.

Financial strain

One financial expert on Sky News last Thursday described the price of food as ‘astronomical’. Gemma Godfrey, a personal finance expert and former adviser to The Treasury, said: ‘Prices are rising because of the cost of energy which feeds through to so many different areas of our lives – organisations are all struggling with high costs that they need to pass on to the consumer. People are spending more and more on essential goods and services, and this is putting them under financial strain.’

Fortunately, there may be some good news. A spokesman for the National Institute of Economic and Social Research said that the economy is ‘more robust’ than previously thought. He predicted that inflation will fall, interest rates will remain the same for a while, and inflation should come down by the end of 2024 rather than any sooner.

It’s also expected that the UK will avoid a technical recession, according to the Office for Budget Responsibility (OBR), which is defined as two consecutive quarterly periods of decline.

What about the future of the base rate? The rate has gone up 11 times since December 2021, when the cost of borrowing stood at a historic low of 0.1%. The next base rate review is due to take place on 11 May. Will there be another base rate increase? It’s impossible to say for sure what will happen, but economists are expecting another hike of up to 4.5%, which could be the outcome of the next review or a later one. The rate is expected to peak at 4.5% in the summer and is then predicted to start to fall. However, as we often say, things can change, and these ‘predictions’ are not cast in stone.

Base rate rise

In the meantime, if you’re wondering how the latest base rate increase will affect you, here’s some information…

If you are on a fixed-rate deal, your monthly mortgage payments will remain unchanged. If you’re on a standard variable rate, your payments may increase, and if you’re on a tracker rate which moves in line with the base rate, your payments will definitely increase.

If you are on a fixed-rate deal due to end this year, bear in mind you can fix a rate on a new deal up to six months in advance with some lenders. Don’t leave it until the last minute if you need to remortgage.

We recommend speaking to an experienced mortgage broker – not only can they give you bespoke advice, but they may also have access to certain deals only available through a broker. We’re here to help with mortgage advice.

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