Bank of England raises rates above crisis lows, signals no rush for next hike

LONDON: The Bank of England pushed interest rates above their financial crisis lows, but signalled it was in no hurry to raise them further as Britain heads for Brexit next year with no clear plan for leaving the European Union.

The BoE’s nine rate-setters unexpected ly voted unanimously to raise rates to 0.75 from 0.50 per cent, the level at which they have spent most of the past decade, apart from a period after the 2016 Brexit vote when they were cut even lower.

But sterling fell against the dollar and the euro and British government bond prices rose after BoE Governor Mark Carney stressed the gradual path for rate hikes ahead.

“Policy needs to walk – not run – to stand still,” he said as he explained a new BoE estimate of neutral interest rates for Britain’s economy, which the central bank believes will gradually rise against a backdrop of strong global growth.

Carney later told the BBC that one rate rise a year for the next few years was a good rule of thumb for the public, as long as there is no major Brexit shock for the economy.

Growth in Britain, the world’s fifth-biggest economy, has slowed since the referendum decision in 2016 to leave the EU.

But the BoE pushed ahead with its rate hike because it believes the economy is operating almost at its ‘speed limit’, or full capacity, raising the prospect of more home-grown inflation pressure ahead.

The increase in borrowing costs looks minimal compared with the average 5 per cent rate before the financial crisis.

But business groups criticised the decision, which comes when there is so little clarity on Brexit.

The British Chambers of Commerce called it ill-judged and the Institute of Directors said the BoE had “jumped the gun”.

With less than eight months to go, London and Brussels – as well as key members of the government – remain far apart about the future Britain-EU trading relationship. — Reuters