“Interest rates should have been raised a long time ago and the Bank of England has been too slow in this regard,” Braverman said.
“Liz Truss has made clear that she wants to review the mandate that the Bank of England has, so that’s going to be looking in detail at exactly what the Bank of England does and see whether it’s actually fit for purpose in terms of its entire exclusionary independence over interest rates,” she added.
A few weeks ago, economist Patrick Minford, seen as Truss's economics guru, said her proposed tax cuts could lead to interest rates of 7%.
The Cardiff University professor, whose ideas the Tory leadership frontrunner has advocated, said that despite fears over mortgages, higher interest rates were actually a ‘good thing’. He argued that they protected savings and ‘killed off zombie companies that were holding the economy back’.
Truss’s team told the Times that, although Minford had been in contact with her campaign, he is not a formal adviser. They also said she would never allow for interest rate to increase to anything as high as 7%, although her plans for a ‘more directive’ mandate to the Bank of England were outlined here as well.
A campaign source from the Truss team said: “Patrick Minford has no formal involvement in Liz’s campaign. Liz’s absolute priority is tackling the cost of living and getting our economy growing faster. We can’t have business-as-usual economic policy.”
The Bank of England later fought back, with its governor, Andrew Bailey, arguing that it's vital for the central bank to be allowed to make policy decisions independent of the government.
Meanwhile, the industry has been responding to the interest rate announcement.
Nicky Stevenson, managing director of Fine & Country, said: “Previous interest rate rises have failed to dampen growth in Britain’s red-hot housing market — but today’s hike is the biggest in more than a quarter of a century and will of course be painful for many.
“As is often the case, that pain will be felt most by those who can least afford it. New entrants to the market will continue to struggle with affordability requirements while existing homeowners who have made spectacular gains during the boom remain in a strong position to trade-up.
“In fact, many homeowners coming off fixed rate deals might suddenly find themselves with improved loan-to-value brackets, which would make them eligible for more attractive financing, and help them mitigate recent increases in the base rate.”
She added: “And don’t forget there are currently eight million homeowners who are completely mortgage free and won’t be impacted at all by today’s announcement.
“For those on standard variable rates, the arguments in favour of switching to a fixed deal have never been more compelling. Fixing rates now will allow you to insulate yourself against further rises for years to come.”
Jason Tebb, CEO of OnTheMarket, commented: “This latest rate rise was widely expected, given continued high inflation, but we don’t expect it to quash positive buyer and seller sentiment in the housing market.
“As stock levels continue to tick up, we are gradually moving towards a more rebalanced market in terms of supply and demand. Yet this will take time and until then, the ‘new normal’, an elevated version of the pre-pandemic market, continues.”
He added: “As long as buyers remain confident about obtaining the mortgages they need and being able to afford them, increases in rates, while unwelcome, are unlikely to result in a slamming on of the brakes. Even with this half-point rise, it is still a comparatively cheap time to borrow money; in a few months’ time, the picture could be very different.”
And Marcus Dixon, Director of Residential Research at JLL, said: “The UK is not alone in experiencing high rates of inflation, with the Bank of England reacting in the same way as many global banks in imposing multiple rate rises. For households this comes at a difficult time as the cost-of-living squeeze erodes households disposable incomes and adds a layer of uncertainty on future outgoings.
“For the housing market the removal of the affordability stress test will add some wriggle room for purchasers and lenders alike, but we expect rate rises alongside and imbalance between wage rises and living costs will combine to deter activity amongst first time buyers and more financially exposed home movers.”
In a poll we carried out on LinkedIn, EAT readers were virtually split as to whether the Bank had made the right decision to increase the base rate by 0.5%.