Bank signals first rise in interest rates for 10 years

●Pound jumps 1 per cent as governor says view of rates is ‘beginning to shift’

Borrowers could be in line for an interest rate rise as soon as November after the Bank of England signalled it may hike borrowing costs in the “coming months”.

The pound rocketed to its highest level against the US dollar for a year after the Bank gave its strongest signal yet that a rate rise is on the cards to cool surging inflation and as economic growth shows signs of picking up.

A rate rise would come as a blow to homeowners after ten years of record low borrowing costs.

Millions have never experienced a rise in their monthly repayments as a result of a rate change. As an example, if Nationwide’s base mortgage rate rose from 2.25 per cent to 2.5 per cent, repayments on a £100,000 mortgage would rise £13 a month to £449, while a £200,000 mortgage would go up by £25 to £897.

A rate rise would also make unsecured personal loans more expensive but it would be good news for savers. Average interest on instant access savings accounts has fallen to just 0.14 per cent a year.

But some economists remained sceptical over an imminent hike, given Brexit uncertainties.

Members of the Bank’s nine-strong

monetary policy committee (MPC) voted 7-2 to keep interest rates on hold at 0.25 per cent, as widely expected.

But the minutes of the latest rates decision meeting showed all policymakers believed “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.

The Bank also reiterated that rates may need to rise by more than expected in financial markets.

The minutes said there was a “slightly stronger picture” for the economy since its forecasts last month thanks to signs of a firmer housing market, stronger employment and a rebound in retail and new car sales.

BOE governor Mark Carney said in a television interview that he and the MPC were “beginning to shift” on when to raise rates.

“We will take that decision based on the data. I guess that possibility has definitely increased,” he said.

Meanwhile, Brexit-fuelled inflation is set to climb above 3 per cent in October – higher than the Bank previously expected.

It raised the prospect of a potential rate rise in November as it said it would “undertake a full assessment of recent developments” at the time of its next quarterly inflation report in two months.

Sterling rose sharply after the rates meeting minutes, were published, jumping 1.1 per cent higher to $1.34 and 1.2 per cent up at €1.12.

Analysts suggested that could help deliver what the Bank wants as a higher pound could start to dampen down inflationary pressures by making imports cheaper.

Aberdeen Standard Investments investment manager James Athey suggested it was a bluff.

“The Bank of England wants to have its cake and eat it,” he said.

“There’s some fairly strong rhetoric today implying that the Bank could raise rates earlier than people expected… But the reality is that they aren’t going to raise rates particularly soon. So they’re playing a game of chicken with financial markets and will keep this up as long as they can.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said they continued to think “GDP growth and domestically generated inflation” will be too weak for the MPC to raise rates over the next year. But he added: “It’s clear now that it would not take much of an improvement in either to spark the MPC into action.”

Andrew Sentance, senior economic adviser to PWC and a former MPC member, meanwhile, warned over a shock to the economy if the Bank does not act soon to raise rates.

He said: “By continually delaying the first move in this direction, there is an increasing risk that when interest rates do start to rise, it will take consumers and borrowers by surprise.”

The decision to hold rates came after official figures on Tuesday showed inflation rose by more than expected to 2.9 per cent in August as the effects of the Brexit-hit pound continued to feed through.

This has been putting the squeeze on British households as pay growth remains muted, with the latest figures on Wednesday revealing real pay was 0.4 per cent lower annually – once inflation is taken into account.

The Bank has been reluctant to raise rates to dampen inflation while growth has been meagre, at 0.3 per cent in the second quarter, although the Mpcminutesshowedabrighter