The Courier & Advertiser (Fife Edition)
Bank of England signals ‘gradual’ rate rises ahead
Move comes as Bank looks to dampen Brexitfuelled inflation
Interest rates have been hiked for the first time in more than 10 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% to 0.5%, 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 as the 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 relief to savers hit 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 Brexit-fuelled inflation, which it predicts will now peak at around 3.2% 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% target, which could see rates hit 1% by the end of 2020.
But sterling fell sharply, down more than 1% to 1.31 US dollars and 1.12 euros, as the Bank’s comments over future rises were more cautious than expected.
The milestone rate hike comes as the Bank cut its forecast for growth to 1.6% for 2017 from the 1.7% previously predicted, but held forecasts at 1.6% for 2018 and 1.7% for 2019.
It is pencilling in growth of 1.7% for 2020.
Nearly four million households face higher mortgage interest payments following the hike, although Mr Carney stressed the impact would be modest and gradual, with around 60% 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.