First UK interest rate increase in 10 years

For the first time in more than 10 years, the Bank of England has raised interest rates.

The official discount rate was raised from 0.25% to 0.5%, the first increase since July 2007.

It is likely to increase twice more over the next three years, according to the Bank of England, Mark Carney, the governor.

The reverse movement of the cut in August of last year, which was made in the wake of the vote to leave the European Union.

Nearly four million households are facing higher mortgage interest payments after the climb, but it should give investors a modest lift in their statements.

As well as many country of 45 million savers, any person who is considering buying an annuity from their pension in retirement will also see the best offers.

The main losers will be households with a variable rate mortgage.
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Mr. Carney expects the banks to pass on the rate rise to savers, but that said a lot of mortgages, loans and credit cards would not see an immediate impact.

The Bank estimated that nearly two million mortgage holders have not experienced an increase in interest rates since the making of a mortgage.

Of the 8.1 million households with a mortgage, 3.7 million people – or 46% on a standard variable rate or a tracker rate, which generally move with the official discount rate.

The average outstanding balance is of € 89 000 dollars which would see an increase in payments of about £12 a month, according to UK Finance.

The panel, which fixed the interest rate, called the Monetary Policy Committee (MPC), has justified the rate increase by pointing to record-low unemployment rate, rising inflation and stronger growth of the global economy.

Seven of the nine members voted in favor of the rate increase.

Mr Carney told the BBC that the Bank expected the UK economy to grow at about 1.7% for the next few years, which he said would require “about two interest rate hikes over the next three years”.

The pound fell around 1% against the dollar and the euro, as some investors had hoped to see hints of more rate increases. Sterling tumbled more than a cent against the two currencies, $1.3130 and €1.1280 respectively.Brexit impact

The financial markets are indicating two interest rate increases over the next three years, the official exchange rate at 1%.

Howard Archer, the chief economic adviser to the EY Item Club council, said: “The Bank of England apparently sees the hike to 0.50% more likely to be a case of “one and a few more to come”, rather than “one and done”.”

The MPC also said that the decision to leave the European Union is having a “significant impact” on the economic outlook.
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Mr. Carney said “”brexit ” constraints” on the investment and the workers seemed to be holding back the growth potential of the economy.

The Bank of England is tasked with keeping consumer price inflation at around 2%.

However, inflation has been running that since the month of February, and in September, he has hit 3% – the highest rate since April 2012.

Mr Carney said inflation was unlikely to return to 2%, with no increase in rates, because the economy was growing at levels above its limit of speed.”

Business organizations said the increase was expected, but warned that companies could be affected if other increases came too soon.

The Federation of Small Businesses, said that some would have difficulty “absorbing more of hikes in the short term”, while the CBI said “what is important, it is the pace of future rises”.

Economists have said that the site was unlikely to have a large effect on the economy because rates are still low seen since the financial crisis.

Lucy O’carroll, chief economist at Aberdeen Standard Investments, said: “The symbolism of the hike is more important than its economic impact.” The pressure on prices

The Bank has been reluctant to increase the interest rate up to the present, arguing that inflation has been driven by the decline in the value of the pound since the brexit vote in June of last year.

The weakness of the pound has pushed up costs for imports of food, fuel and other goods. The Bank said that this effect is probably at its peak at this time.

The other problem which is hampering the Bank has been the weakness of wage growth. While inflation has reached 3% in September, wage growth has been 2.1%.

However, the Bank sees wage growth “gradually” increase during the 2018 and says there are signs of this happening already.

In its Quarterly Inflation Report, published with the announcement on rates, the Bank believes that the inflation was probably at the tip of this month, to 3.2%.

Do you have a question about the interest rate change? What do you need to know about the change? E-mail to the haveyoursay@bbc.co.uk.

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