Thursday, 03 February 2022 10:32
Bank of England increases base rate to 1%
The Bank of England has today increased its base rate by 25 basis points from 0.75% to 1%.
The move was widely tipped by experts and is seen as an attempt to curtail soaring inflation, which hit 7% in March (CPI rate).
The move means that interest rates are at their highest level since 2009.
At its meeting in March, the Monetary Policy Committee voted to increase the Bank Rate by 0.25 basis points to 0.75%. In February, the Bank of England increased its base rate from 0.25% to 0.5%.
The latest base rate rise is the fourth in a row for the Bank, which had previously held rates steady for three years.
With concerns that CPI inflation could hit 9% or higher this year experts have not ruled out further rises to the bank base rate.
Emily Penn, capital and investment director at LV=, said there was a risk of higher inflation becoming embedded, forcing the Bank to act more aggressively.
She said: “The Bank of England’s decision to raise interest rates by 0.25% is what I expected. The BoE is having to strike a balancing act between managing economic growth and inflation a challenge it has not faced for many years.
"While an increased rate helps tackle inflation it hinders economic growth. We expect inflation to trend back down towards target late in 2023 as the impacts of increased energy prices and the Covid recovery come out. There remains a risk of higher inflation becoming embedded and then the BoE will need to act more aggressively.”
Hinesh Patel, portfolio manager at Quilter Investors, said the latest rate rise was "like shuffling deck chairs on the Titanic".
He said: “While the BoE may be putting up a confident front, given the current delicate market environment, we could easily see inflation continue to rise above the BoE’s forecasts. Investors will need to continue to watch the data and markets closely and allocate accordingly. Diversification, active management and prudency remain key.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said the latest announcement from the Bank could boost for annuities.
She said: "Annuities could be about to step back into the spotlight as today’s interest rate rise look set to further boost annuity incomes in the coming months. After languishing in the doldrums for some time annuity incomes have risen markedly, in part helped by recent interest rate increases and we should see this upward momentum continue."
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