The National Franchised Dealers Association (NFDA) has warned that the Bank of England’s decision to raise the UK interest rate to 3% will make funding car purchases “harder for consumers”.

The Bank of England (BoE) confirmed today (November 3) that interest rates will rise by 0.75%, from 2.25% in September to 3%, on December 15 in what is the biggest hike in 14 years.

The Bank’s Monetary Policy Committee (MPC) voted seven to two in favour of the move which is part of a strategy to bring inflation – currently in double figures – down to below its 2% target.

NFDA chief executive Sue Robinson said: “Today’s anticipated decision by the Bank of England to raise their interest rates by 0.75%, to 3%, is likely to have implications on consumers spending habits, but automotive retailers should not be too concerned as rates are still historically low.

“Raising interest rates will have an effect on people’s savings and mortgage accounts, and will also have implications for things such as bank loans and car loans.

“NFDA understands how crucial it is for the Bank of England and the Government to make every decision necessary to stabilise the current economy, but by raising interest rates it will make it harder for consumers to fund essential purchases such as cars required for mobility including commuting to work.

“However, cars are still a necessity to many and whilst the current new car market is facing well-documented supply side constraints, figures reveal that consumer demand remains buoyant, and NFDA believes this will continue through this latest rise in interest rates.”

CPI inflation was 10.1% in September and is projected to pick up to around 11% in 2022 Q4, lower than was expected in August, according to the Bank of England.

It reported that nominal annual private sector regular pay growth rose to 6.2% in the three months to August, 0.6 percentage points higher than expected in the August Report, meanwhile.

In a statement accompoanuying news of today’s rise in interest rates, the BoE said that it expects UK inflation to “fall sharply to some way below the 2% target in two years’ time, and further below the target in three years’ time”.

It added: “In projections conditioned on the alternative assumption of constant interest rates at 3%, activity is stronger than in the MPC’s forecast conditioned on market rates, although GDP is still expected to be falling at the end of 2023.”