After 9 years, the US raises interest rates

BRITISH households face the threat of higher borrowing costs after the US raised interest rates for the first time in nearly a decade.

Rates have been frozen at record lows on both sides of the Atlantic since the financial crisis, slashing the cost of mortgages and other loans for millions of borrowers.

But in a move that in effect draws a line under that era, the Federal Reserve last night raised rates in America for the first time since 2006.

Analysts described the increase as a watershed moment for the global economy and a sign that the era of cheap borrowing is coming to an end.

US rates were cut to a record low of 0 to 0.25 per cent in late 2008, but with the American economy recovering strongly, the Fed raised them to between 0.25 and 0.5 per cent. The US central bank’s chairman Janet Yellen said it ‘marks the end of an extraordinary seven-year period’.

Bank of england Governor Mark Carney yesterday tried to play down the prospects of the UK following the Fed’s lead, hinting that he was in no rush to raise rates in Britain. However, independent experts warned that an increase looked inevitable.

Charlie Diebel, an interest rate expert at Aviva Investors, which manages billions of pounds of pensions and savings, said the US rate rise ‘doesn’t force the hand’ of the Bank of england but will put pressure on it to respond.

Andrew Sentance, senior economic adviser at PricewaterhouseCoopers and a former Bank official, said: ‘Next year we will start to see interest rate rises here in the UK.’

A rise from the current 0.5 per cent to 0.75 per cent would add £18 a month, or £216 a year, to the cost of a typical £150,000 lifetime tracker mortgage.

But it would offer some respite to savers who have been hammered by seven years of ultra-low rates.

City – Pages 68-69

‘An extraordinary period has ended’