Borrowers braced for mortgage rate hike after interest rate rise

Bank signals that more ‘ gradual’ increases remain on the agenda

Interest rates have been raised for the first time in more than ten years and the Bank of England signalled more “gradual” increases are on the way to cool surging inflation.

The Bank’s nine- strong monetary policy committee ( MPC) voted 7- 2 to raise rates from 0.25 per cent to 0.5 per cent, which marks the first increase since July 2007.

The quarter-point rise reverses the emergency cut seen in the aftermath of the Brexit vote shock in 2016 as t he Bank sought to head off turmoil in the economy.

Millions of borrowers on variable rate deals will be impacted by the rates decision, which will add around £ 15 a month to the cost of the average mortgage, while it will offer some

0 Bank of England governor Mark Carney said ‘ households are generally well positioned for a rate increase’ relief to saver shit by surging inflation and negligible returns.

Bank governor Mark Carney said: “With unemployment at a 42- year low, inflation running above target and growth just above its new, lower speed limit, the time has come to ease our foot off the accelerator.”

The move comes as the Bank looks to dampen Brexitfuelled inflation, which it predicts will now peak at around 3.2 per cent this autumn.

The Bank’s quarterly inflation report is based on financial market expectations for two more rate hikes over the next three years to return inflation back to its 2 per cent target, which could see rates hit 1 percent by the end of 2020.

But sterling fell sharply, down more than 1 per cent to $ 1.31 and € 1.12, as the Bank’s comments over fut ur er ises were more cautious than expected.

The milestone rate hike comes as the Bank cut its fore - cast for growth to 1.6 per cent for 2017 from the 1.7 per cent previously predicted, but held forecast sat 1.6 percent for 2018 and 1.7 per cent for 2019.

It is pencilling in growth of 1.7 per cent for 2020.

Nearly four million house - holds face higher mortgage interest payments following the hike, although Mr Carney stressed the impact would be modest and gradual, with around 60 per cent of borrowers on fixed- rate deals.

He said :“Households are generally well positioned for a rate increase.

“More are in work than ever before. Only about one fifth of people with mortgages have never experienced an increase in bank rate.”

Mr Carney added that monetary policy would continue to provide “significant support” to the economy.

On the rates decision, Chancellor Philip Hammond tweeted :“Our economy is strong and resilient, supported by independent monetary policy and stable prices from the Bank of England.”

Theresa May’ s official spokesman indicated that the Prime Minister would like to see banks pass on the interest rate hike to savers.

“Following the rate rise, we would expect to see higher interest rates to be passed on to savers,” said the spokesman.