More expensive mortgages and loans on the way

Bank of England. Credit: Getty Images

 By TalkTV reporter Oliver Whitfield-Miocic

More expensive mortgages and loans are on the way as Bank of England rate-setter says even higher rate is needed.

One of the people in charge of setting the Bank of England’s interest rate, has told TalkTV that more hikes are necessary to tackle persistent double digit inflation which is looming over the UK. 

The decision on how high to set the rate is due next month and affects how much it costs to take out a mortgage or a loan and even trickles down to how expensive your mobile phone contract or TV subscriptions will be.

Dr Catherine Mann, one of the more hawkish members of the nine-person Monetary Policy Committee which sets the rate, wants a harsher rise than most. Today she told the Resolution Foundation: “I believe that more tightening is needed and caution that a pivot is not imminent."

Earlier this month the Bank's rate was raised from 3.5% to 4%. It has been climbing steadily since December 2021. Before that interest rates had remained at a historic low of under 1% for the decade following the global financial crisis. 

Now a new set of crises is battering the UK economy. From the war in Ukraine, supply chain issues, labour market shortages and the value of the pound. 

Dr Mann told TalkTV: "A lot of inflation we are looking at now are those external sources but to the extent that we could have moved faster my view is that we potentially could have forestalled some of the likely embeddedness."

As a result, it seems that for interest rates, the only way is up - although the committee disagrees about how far those rises need to go to reverse inflation.

"Think of it as a discussion group where we try and collectively understand the behaviour of the economy. We look at a lot of data, a lot of stuff. We can still end up in different places with regard to what we think the appropriate monetary policy path is."

Only recently the Bank of England hinted that it would slow down the pace of interest hikes. While most economists are predicting the bank’s interest rate will hit 4.25% in March, Catherine Mann believes the bank needs to be more aggressive to get things under control quicker. In essence, short term pain for a quicker gain. 

At the last meeting she wanted to push the rate up by 0.75 percentage points while the committee ultimately settled on a 0.5 point lift.

Savers are among the few who benefit from rising interest rates but as the cost of living crunch continues to eat away at personal finances, fewer of us can afford to put away extra cash.