The Bank of England has raised rates to 5.25 per cent, up from 5 per cent, marking another 15-year high.
In their rate setting meeting today (August 3), the central bank’s monetary policy committee voted six to three in favour of raising the base rate of interest in a bid to lower inflation.
The last time it stood at 5.25 per cent was in March 2008.
The rise comes as the current inflation rate sits at 7.9 per cent, well above the 2 per cent target.
Rachel Springall, finance expert at Moneyfacts called the latest base rates rise "disappointing" news to borrowers worried about rising mortgage repayments.
She said a 0.25 percentage point increase on the current standard variable rate would add around £794 onto total repayments over two years.
She added: "Consumers struggling with their outgoings amid the cost of living crisis, or who have become a ‘mortgage prisoner’, would be wise to seek independent advice to review their situation.
"Fixed rate mortgages, for two, five and 10-year terms are around 3 per cent higher on average compared to December 2021 and the average standard variable rate has risen consecutively over the same period, so a fixed mortgage can give borrowers some peace of mind by securing their monthly repayment."
While William Marshall, chief investment officer at Hymans Robertson Investment Services, said the relatively small rise shows the committee was "cautiously encouraged" by recent data.
He said: "Until a couple of weeks ago, when inflation data for June was released showing a greater-than-expected drop, it seemed the BoE was heading for another 0.5 per cent increase. Notably, underlying inflation indicators for services and core inflation (which excludes volatile items like food and energy) also fell more than anticipated. This was enough to convince the MPC that a lower hike would be sufficient."
However, CEO of Octane Capital, Jonathan Samuels, argued the Bank of England could have gone further to bring down inflation.
Samuels said: "Whilst an unpopular opinion, it could be argued that the Bank of England hasn’t been daring enough in their decision to increase rates again today and really another 0.5 per cent increase was needed in order to tame inflation. It’s far better to have a short period of pain brought about by higher interest rates, rather than a sustained period of significant economic turmoil and uncertainty."
tara.o'connor@ft.com
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