The Bank of England’s (BoE) Monetary Policy Committee (MPC) held its base rate at 3.75% on 30 April, against a backdrop of renewed economic volatility.
The committee voted eight to one in favour of another hold as it continues to ‘wait and see’ on inflation data. The dissenting member, Huw Pill, voted for a 0.25% hike. The committee believes the crisis in the Middle East could send inflation soaring, with a worst-case scenario forecasting a rise to 6%.
Supply chain disruptions in the Strait of Hormuz and a subsequent surge in global oil prices have pushed UK inflation back up to 3.3% over the last month, a significant move in the wrong direction from the Bank’s 2% target.
The stakes are particularly high for the estimated 1.8 million homeowners whose fixed-rate mortgage deals are due to expire in 2026.
According to data from UK Finance, many of these households are transitioning from ultra-low rates secured during the 2021–2022 period.
Commenting during the meeting, BoE governor Andrew Bailey explained the complex outlook: “The increase in energy prices from conflict in the Middle East represents a supply shock.
“So far, this shock differs from 2022 as the increase in energy prices has been smaller, monetary policy started more restrictive and the labour market is weaker. Pay pressures are continuing to ease gradually.
“Future higher pay demands could come up against firms’ margin constraints, a softer labour market and firms’ caution about passing on cost increases. This shock will induce a trade-off between higher inflation and softer output, and the appropriate policy response is state-contingent (Box G).
“If the shock appears to be short-lived or the economy weaker, policy should place relatively more weight on avoiding unnecessary contraction in activity. If second-round effects are likely to be greater, policy should focus on returning inflation back to target more quickly.”
Remortgaging
The current volatility underscores the importance of a stress-tested long-term financial plan. For most the impact of higher rates won’t be felt directly. Households are more likely to feel pressure from rising prices.
However, mortgage holders due to renew should consider their circumstances carefully and speak to a mortgage professional to ensure they get the best deal for their situation. An adviser can help with weighing the risk of waiting against the certainty of a deal available today.
And for wider portfolio considerations it is important to ensure your long-term financial plans are up to date and you’re not provoked into snap changes by events.
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