In response to persistent inflationary pressures supported by robust wage growth, the Bank of England has raised interest rates by a quarter of a percentage point on Thursday. This move elevates the primary borrowing cost for commercial banks in the United Kingdom to 5.25%, marking its highest level since February 2008.

The decision, however, was characterized by division within the bank’s monetary policy committee. While six members voted in favor of the quarter-point increase, two advocated for a half-point hike, and one pushed for a pause.

For over 2 million mortgage holders in the UK, the news brings unwelcome challenges. With impending refinancing this year and the next, these borrowers are already grappling with significant upticks in their monthly mortgage payments.

The average two-year fixed-rate mortgage cost stood at 6.85% on Thursday, a stark contrast to the 3.95% observed in August of the previous year, as reported by financial product comparison website Moneyfacts.

While the recent hike compounds the financial strain on borrowers, there is potential for further discomfort. Prior to this adjustment, financial markets had been forecasting the Bank of England’s benchmark interest rate to crest at 5.75% by year-end. This escalation is part of the central bank’s endeavor to curb escalating prices.

Although UK inflation has slightly eased in recent months, it remains persistently elevated. June witnessed consumer price inflation at 7.9%, down from its 11% peak in October 2022.

This rate still outpaces other Group of Seven affluent nations by a considerable margin and significantly surpasses the Bank of England’s target rate of 2%.

Furthermore, core inflation, excluding volatile food and energy expenses, receded to 6.9% last month from May’s 7.1%, which represented its highest point in 31 years.