Bank of England set to raise interest rates to highest levels since 2008
Dale Anderson
Director at Fabrik Property Group | Multi-Award-Winning Property Investment Expert (￡2bn+ Raised) | Advisor to HNWIs & Family Offices | AI & PropTech Enthusiast
EEAs financial analysts warn of yet another Bank of England base rate increase, concerns about the UK housing market are surfacing once again. If these analysts are correct, this will mark the 12th consecutive BoE meeting where the base rate has risen, all in an effort to combat stubbornly high inflation.
Last month, the Bank's Monetary Policy Committee (MPC) voted 7-2 in favor of raising interest rates by 0.25 percentage points, bringing the rate to 4.25%, the highest level since the 2008 financial crisis. Most experts agree that the MPC will raise the rate to 4.5% at tomorrow's meeting, with some warning that this may not be the final increase.
According to Samuel Tombs, chief UK economist at Pantheon Macroeconomics, "It's too soon for the MPC to declare victory - we now expect one final 25bp hike at next month's meeting." Meanwhile, Laith Khalaf, head of investment analysis at the bank AJ Bell, explains that "the UK's headline inflation rate is running around twice that in the US, so it's easy to see why we might have to swallow another few doses of monetary medicine."
Matthew Ryan of global financial services firm Ebury adds that "sticky inflation raises the possibility that the UK economy could tip into a technical recession in 2023. On the other hand, it more or less guarantees that the Bank of England still has a little way to go in raising interest rates. We see another 25bp hike at the May MPC meeting as a foregone conclusion, and we wouldn't be at all surprised to see another couple more hikes beyond."
Sky's economics and data editor Ed Conway warns that "less than a month ago investors were betting the Bank of England interest rates would peak at 4.5% or even 4.25%. Now they're betting they'll hit 5.0% this year. The highest projected rate since the mini-budget fallout. ""Another consequence of unexpectedly high and stubborn inflation."
But what does all of this mean for the UK buy-to-let property investment market?
While some may see rising interest rates as a potential negative for the property market, it's important to note that the UK housing market has demonstrated a remarkable resilience in the face of numerous economic challenges. Despite the uncertainty of Brexit and the ongoing pandemic, house prices have continued to rise, and many experts predict that this trend will continue.
Furthermore, the rental market has remained strong, with demand outstripping supply in many areas of the country. This bodes well for buy-to-let investors, as rental yields are expected to remain high even in the face of rising interest rates.
It's also worth noting that rising interest rates could actually benefit the property market in some ways. As borrowing becomes more expensive, fewer people may be able to afford to buy their own homes, which could lead to increased demand for rental properties. Additionally, rising interest rates may discourage some property investors, leading to a potential reduction in competition for buy-to-let opportunities.
In conclusion, while the Bank of England's impending interest rate increase may cause some concern for buy-to-let investors, the UK housing market has proven time and again that it's capable of weathering economic storms. With the rental market remaining strong and demand for rental properties continuing to outstrip supply, buy-to-let investors may continue to find success in the years to come.
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