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Bank of England hikes interest rate for the first time since Iran war, warns inflation will near 5%
The move will raise borrowing costs for households and businesses as policymakers try to curb inflation that has climbed well above the Bank’s 2% target.
The Bank of England raised its key interest rate by 25 basis points to 4% on Thursday, marking the first increase in over three years.
Rising inflation driven by energy costs from the Iran war prompted policymakers to act, as the Consumer Prices Index remains elevated and expected to climb further.
The rise immediately impacts 510,000 tracker mortgage-holders, while 470,000 variable-rate mortgage holders await individual lender reactions to determine their new payments.
Lenders have already "priced in" the rise, with average two-year fixed rates at 5.96% and five-year rates at 5.99%, though savers may see improved returns.
Chris Cheverall, head of UK at CMC Markets, said the focus is now "what follows after" reaching 4%, as policymakers balance high inflation against weakened economic growth.
The energy price shock hits Britain in particular, inflation has recently risen to 3.5 percent. Now the Bank of England is responding. Experts are already expecting further steps.