Today (February 2), the bank's monetary policy committee (MPC) voted 7–2 to increase the rate by 0.5 percentage points, with the disagreeing members voting to keep the base rate at 3.5 per cent.
The MPC said UK domestic inflationary pressures have been "firmer than expected", with both private sector regular pay growth and services CPI inflation "notably higher" than forecasted in its November report.
Economists had expected the MPC to raise the base rate by this amount, sharing their predictions earlier this week.
Advisers need to be ready to help those who are facing higher monthly costs.Jonny Black, Abrdn
In a statement today (February 2), the MPC said: "Near-term data developments will be crucial in assessing how quickly and to what extent external and domestic inflationary pressures will abate.
The committee said it expects CPI inflation to "fall back sharply" from its current "very elevated level" of 10.5 per cent in December.
"Annual CPI inflation is expected to fall to around 4 per cent towards the end of this year, alongside a much shallower projected decline in output than in the November report forecast," it added.
The next base rate review is due next month, on March 23.
Strategic director for advisers at Abrdn, Jonny Black, said the latest interest rate hike will put further pressure on clients’ budgets, particularly those with debt.
“Advisers need to be ready to help those who are facing higher monthly costs," said Black.
"This could mean decreasing the amount they regularly save, or helping review investment strategies to identify where clients can generate extra income.
“Looking ahead, there are suggestions that interest rates will rise even more this year to 4.5 per cent."
However, Black also said this is a fast-moving environment, with little certainty.
"One thing’s for sure – when it comes to their money, clients will value advisers’ help in maintaining a long-term view, and avoiding any short-sighted reactions that may leave them worse-off," he added.
Despite the anticipated base rate rise, mortgage lenders have been continuing to cut their interest rates, with more five-year deals falling close to 4 per cent.
Earlier this week, brokers told FTAdviser the base rate rise today was likely already factored in to mortgage interest rates, meaning the rise is unlikely to push fixed mortgage rates up.
Tracker rates - which follow the base rate - are expected to edge up after today. Some lenders had already put them up by 0.5 percentage points ahead of the rate rise announcement.