Bank Base Rate Increase

The Bank of England has raised the base rate to 0.75%, just the second time it has been hiked in a decade.

Members of the Monetary Policy Committee (MPC) voted unanimously to raise the base rate by 0.25%, taking it to 0.75%.

The last time the base rate was above 0.5% was in February 2009 when it stood at 1%, and in November 2017, interest rates rose from 0.25% to 0.5%, 15 months after they were dropped to an unprecedented low.

The move came as no surprise as the markets were pricing in a 91% chance of a rate hike, but it does come in the face of weak and fragile UK economic growth figures.

The MPC said that the recent data which showed a dip in output in the first quarter was temporary, as momentum recovered in the second quarter. GDP is also expected to grow by 1.75% per year on average and unemployment is low, and is projected to fall a little further.

Turning to inflation, which stood at 2.4% in June, the MPC said it lingers above the 2% target due to “external cost pressures“, resulting from sterling’s past depreciation and higher energy prices. These pressures are projected to ease over the forecast period while domestic cost pressures are expected to rise.

Minutes from the MPC meeting noted: “Taking these influences together, and conditioned on the gently rising path of Bank Rate implied by current market yields, CPI inflation remains slightly above 2% through most of the forecast period, reaching the target in the third year.

“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal.

“The Committee judges that an increase in Bank Rate of 0.25 percentage points is warranted at this meeting.

“The Committee also judges that, were the economy to continue to develop broadly in line with its Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to the 2% target at a conventional horizon. Any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”

From 1 April, new lets and relets with an energy performance certificate (EPC) rating of ‘F’ or ’G’ cannot be rented out, and existing tenancies have until 1 April 2020 to upgrade their EPCs. Any landlord letting a property that fails to meet the standard required could face a penalty of up to £4,000.

 

UK interest rates rise for first time in 10 years

The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007.

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

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

Almost four million households face higher mortgage interest payments after the rise, but it should give savers a modest lift in their returns.

The main losers will be households with a variable rate mortgage.

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