BoE raises interest rate first time in decade

LONDON: The Bank of England (BoE) yesterday raised its main interest rate for the first time since 2007, or before the global financial crisis, as it tackles Brexit-fuelled inflation.

Policymakers voted 7-2 to tighten borrowing costs to 0.50 per cent from a record low of 0.25 per cent, as a weak pound caused by Brexit uncertainty has hiked the cost of imports into Britain and in turn sent the country’s inflation rising far above the BoE’s target.

The hotly-anticipated move mirrors policy tightening seen in the United States and eurozone as the global economy strengthens overall.

“The time has come to ease our foot off a little from the accelerator,” BoE governor Mark Carney told a press conference following the decision. The minutes of the meeting showed that Carney himself voted for the rate hike.

“While the sheer novelty of the first increase in bank rates in a decade creates some uncertainty around its impact, there are reasons to expect it to be no larger than usual,” Carney said.

The BoE signalled that more rate hikes could be on the way, saying it stood “ready to respond” should the economy require it.

“There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of European Union withdrawal,” according to the minutes of a regular policy meeting that ended Wednesday.

The pound, which has recently risen on expectations of a hike, tumbled in an immediate reaction, while the London stock market extended earlier gains as a weaker sterling helped the earnings prospects of exporters.

The BoE “will monitor closely... the impact of the increase in the bank rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the two-percent target”, the minutes added.

It is the first BoE hike since before the financial crisis, when the rate were ratcheted up to 5.75 per cent in July 2007.

The bank subsequently cut borrowing costs to ultra-low levels following the 2008 crisis.

The quarter-point increase reverses an emergency rate cut implemented in August 2016 on fears over the economic impact of the shock Brexit referendum that has not materialised. AFP