Bank of England hints at November interest rate rise
The Bank of England has raised the prospect of an interest rate rise as early as November, in an attempt to relieve the squeeze on living standards from surging prices and sluggish wage growth.
Threadneedle Street left interest rates at their record low of 0.25 percent amid fears over Brexit, but dropped a heavy hint that the first increase in the cost of borrowing for a decade may come sooner than expected if the economy continues to strengthen, reported the Guardian.
Financial markets now suggest there is a 42 percent chance of a rate increase in November, up from just 18 percent a week ago. The odds on a December rise are now 54 percent.
The squeeze on households and a strengthening economy mean some withdrawal of monetary stimulus was likely to be appropriate over the coming months, the Bank said.
It added that a majority of the interest rate setting committee agreed with that assessment, and the governor, Mark Carney, later confirmed that he shared the majority view.
The pound jumped more than one percent against the dollar and the euro as the financial markets digested the impact of the comments. Such strong hints on likely rate changes are not usual.
Raising the cost of borrowing would reverse the emergency rate cut introduced by Carney in August 2016 in the wake of the Brexit referendum. It would also raise the cost of mortgages for the first time for millions of homebuyers who have never experienced a rise in their monthly repayments as a result of a rate change.
Nationwide’s base mortgage rate would rise from 2.25 percent to 2.5 percent, meaning repayments on a £100,000 mortgage would rise £13 a month to £449. A £200,000 mortgage would go up by £25 to £897.
The Bank’s monetary policy committee (MPC), which sets borrowing rates, was split, with the external economists Michael Saunders and Ian Mccafferty calling for an immediate rise to 0.5 percent to keep inflation in check.
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