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Bank of England Governor Andrew Bailey says it is getting harder to keep interest rates at 3.75% while energy prices remain high. The comments add to expectations of a rate increase, while fixed mortgage rates have already risen and average deals are nearing 6%.
Bank of England Governor Andrew Bailey said it is getting harder to keep interest rates on hold as high energy prices persist, adding to expectations that the Bank may raise its 3.75% Bank Rate at its next meeting. The prospect matters to borrowers because average fixed mortgage rates are close to 6%, according to figures from Moneyfacts.
Bailey told an economics conference in Oxford that evidence of energy costs spreading into prices across the wider economy remained “quite subdued”. But he said policymakers could not wait for the full effects to appear before deciding whether to act, because by then it could be too late. He added that maintaining the current rate stance would become harder the longer energy prices stayed high.
The Bank’s Monetary Policy Committee voted 6-3 to hold rates last week. The three members who dissented supported an increase. The Bank’s forecast included a 24% rise in energy bills next January and inflation moving above 4%. The account says policymakers are weighing whether the oil and gas price shock linked to the war in Iran will fade or feed through into broader inflation; the extent and duration of that effect are not yet established.
Moneyfacts figures show the cheapest two-year fixed mortgage rate rose from 3.51% before the conflict to 4.75%. The average two-year deal climbed from 4.83% to 5.92%, while the average five-year rate rose from 4.95% to 5.94%. These are reported market rates, not a forecast of what any individual borrower will be offered.
Mortgage Costs Near Six Per Cent
The rate debate is already affecting the price of new fixed mortgage deals. Lenders use market funding costs, including swap rates, when setting those offers, so expectations of higher Bank Rate can feed into mortgage pricing before the Bank makes a decision. David Hollingworth, associate director at L&C Mortgages, said higher expectations were pushing swap rates up and increasing lenders’ costs of funds.
The change may matter most to households approaching the end of a fixed deal or seeking to buy with a mortgage. Moneyfacts head of consumer finance Adam French said average rates were uncomfortably close to 6%, while remaining below that level in the figures cited. He said a sustained market expectation of Bank Rate between 4.5% and 4.75% would be consistent with average mortgage rates reaching 6% or more. That is an industry estimate, not a guaranteed outcome.
Higher borrowing costs can affect monthly payments and the number of households able to proceed with a purchase or remortgage. Sarah Tucker, a mortgage expert at Homeowners Alliance Mortgage, said her industry was preparing customers for potential increases and that borrowers could book a remortgage rate up to six months ahead. Whether rates rise further will depend on economic and market developments, and individual mortgage costs vary by lender and borrower.
Energy Shock Tests Bank Forecasts
The Bank has so far kept rates unchanged this year, even as the US Federal Reserve and European Central Bank have raised theirs to curb inflation, according to the source account. The MPC’s latest split vote shows that views within the committee already differ: three members wanted an increase, while six voted to hold. Bailey’s remarks do not announce a decision or change the current rate.
The immediate pressure comes from higher oil and gas prices associated with the war in Iran. The source reports oil above $100 a barrel, compared with $72 before the conflict began, alongside increases in petrol, diesel and energy bills. Those reported prices provide a snapshot; they do not establish how long the shock will last or how much of it will pass into other prices.
Two deputy governors have also warned that persistent energy costs could require tighter policy. Sarah Breeden referred to “sparks in the tinderbox” of inflation, while Clare Lombardelli said policy was increasingly likely to need tightening if elevated energy prices persisted. Their comments, like Bailey’s, describe risks and possible responses rather than a settled committee decision.
““Although we haven’t increased Bank rate, it’s going to get harder to maintain that stance the longer we have high energy prices for.””
— Andrew Bailey, Bank of England governor
Inflation Pass-Through Remains Unclear
The Bank has not said that it will raise rates at its next meeting. Bailey said evidence that higher energy costs were feeding into the wider economy was still subdued, and the account does not provide a final committee decision or a firm forecast for how energy prices will develop.
It also remains unclear whether the conflict-related oil and gas shock will prove temporary or lead to persistent price rises across the economy. Investors are reported to expect a November increase and three further increases next year, but those expectations can change. The source does not specify the precise dates or assumptions behind that market pricing.
November Meeting in Focus
Markets and borrowers will be watching for further evidence on energy prices, inflation and the wider economy ahead of the Bank’s next rate decision, which the source account identifies as taking place in November. The MPC will decide whether the evidence justifies changing Bank Rate; Bailey’s remarks alone do not settle that question.
Mortgage lenders may continue to adjust fixed offers if market funding costs remain high or rise further, Hollingworth said. French said the average mortgage rate reaching 6% was coming into view, while describing that level as a concern rather than a certainty. Borrowers considering a remortgage may wish to compare available offers and terms, but future rates and individual eligibility remain uncertain.
Key Questions
What did Andrew Bailey say about interest rates?
Bailey said it was getting harder to keep rates on hold for as long as energy prices remain high. He did not announce a rate increase.
What is the Bank of England’s current Bank Rate?
The source reports Bank Rate at 3.75%. The MPC voted 6-3 to leave it unchanged at its latest meeting.
Have mortgage rates reached 6% on average?
The figures cited put the average two-year fixed rate at 5.92% and the average five-year rate at 5.94%. The source says average rates are close to, but below, 6%.
Is a November rate rise confirmed?
No. Investors are reported to expect a rise, and some committee members have signalled concern about inflation, but the Bank has not confirmed its next decision.
Source: rss
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