Industry split on whether rate rise is an "unnecessary risk"

Many raised concerns that the move could damage a fragile economy, and that the Bank had taken an 'unnecessary risk' when the economy is facing significant headwinds from ongoing Brexit uncertainty.

Former RICS residential chairman, Jeremy Leaf, said: "It’s not the relatively modest increase in interest rates which is significant - the message it sends about their future direction is far more important. The change is likely to compromise already fragile confidence to take on debt in the property market and wider economy."

Fran Boait, executive director of Positive Money, added that "with little evidence of domestic inflationary pressure, the Bank of England has today taken an unnecessary risk in raising interest rates while the economy remains weak".

Fran believes that small interest rate hikes are "the wrong tool at this time", arguing that the "worrying state of household finances and the structural weakness of the economy will have to be fixed first".

Jonathan Samuels, CEO of Octane Capital, agreed that "in raising rates, the Bank of England has arguably put its reputation before the welfare of the average British household".

He added: "While a quarter per cent increase won't take home finances to breaking point, it will add to the pressure at a time when confidence is already low.

"Why rock the boat just as we approach the business end of Brexit, all the more so given that inflation is not significantly above target?"

Tom Stevenson, investment director for Fidelity International, said that "although the central bank had very little choice but to act today", it may have taken an "unnecessary risk".

He noted that recent inflation data has been softer than expected and UK wage growth continues to remain subdued, "suggesting that the UK economy may not be in as rude health as the BoE would like us to believe".

He continued: "On top of this, the UK economy continues to face significant headwinds from ongoing Brexit uncertainty as well as wider geo-political concerns.

“With this in mind, and for fear of unsettling the UK economy any further, the Bank also re-iterated that any future rate hikes are likely to remain at a ‘gradual pace and to a limited extent’. Because of this, I would expect this to be the only rate hike that the BoE makes this this year and possibly well into next year. This means the base rate is unlikely to overtake even subdued inflation anytime soon and the average cash savings account is therefore unlikely to offer real returns for the foreseeable future."

Whilst bad news for savers, Craig McKinley, sales and marketing director at Kensington Mortgages said that homeowners needn't panic about increasing rates.

He said that although the "record low interest rate era is over... we're still a long way off from the 5-6% mark ten years ago".

Many in the mortgage industry noted that fixed-rate borrowers are at a record high, and those on variable rate mortgages should only see repayments rise by around £200 a year (although some did choose the rate rise to highlight the importance of remortgaging for SVR borrowers).

John Phillips, group operations director at Just Mortgages and Spicerhaart, said: “Although a rate rise is likely to be a concern to some borrowers, when it is in increments of just 0.25% the number of people that are likely to have to worry about affordability is minimal, when the whole of market is considered. We have been hearing threats of another interest rate rise for a few months now, and many people have either switched or remortgaged onto fixed rate deals to negate any sudden rise to their monthly outgoings."

Others in the industry remained upbeat about the rate rise, believing it signalled a stronger UK economy.

Jack Ballantine, director of residential development and investment at UK Sotheby’s International Realty, commented: “We welcome the Bank of England’s small increase to interest rates today. Sterling’s value is now likely to increase, giving added confidence to foreign investors which is exactly what is needed following punitive tax changes and uncertainty around Brexit. The move further solidifies London’s economic stability and is unlikely to have a negative impact on house prices."

Alex Brandreth, deputy CIO at Brown Shipley, also believes that an "interest rate normalisation is long overdue", adding that economic growth suggests that "we could withstand higher interest rates despite inflationary pressure".

Brandreth continued: “What is surprising however, is the timing of this interest rate decision given its proximity to Brexit negotiations.

“There are two possible conclusions one can draw from this. Either the Bank of England feels increasingly confident that we will achieve a positive outcome from ongoing negotiations and growth will remain strong as a result. Or, the Bank is looking to inject some “firepower” into the economy if we do face a bad outcome and is giving itself the flexibility to stimulate the economy in the not-so distant future.

“Famously, the Bank of England cut interest rates immediately after the referendum in August 2016 and restarted its quantitative easing programme in order to reduce the impact of the result on the economy.

“Perhaps this move will put the Bank in a “win-win” position. If the Brexit result is positive they will have done the right thing, but equally, if growth stalls from a “no deal” result then they will still retain the ability to manoeuvre going forward.”