Updated August 2nd 2018
Bank of England raises rate to 0.75%
The official UK bank rate has been raised for the second time since July 2007, from 0.5% to 0.75%.
With CPI inflation remaining above target at 2.4%, and with unemployment continuing to fall in a tightening labour market (currently standing at 4.2%), the Bank of England has concluded that the UK economy is strong enough to withstand another modest rise.
The 0.25% increase, which followed a unanimous 9 to 0 vote by the monetary policy committee, may herald the start of a period of tighter monetary policy.
Given that the rate rise was widely predicted, even with Brexit uncertainty remaining high, the effect on sterling is likely to be small. Also, with so many borrowers on fixed rate mortgage deals (around 65%), the impact on household spending is also likely to be modest.
According to the Nationwide, however, for those on a variable rate, the impact will be felt immediately, with a 0.25% rate increase meaning that someone on a £200,000 mortgage would pay an extra £25 a month (£300 a year).
Interest rates 1997 – 2018
Latest inflation report – press conference
VIDEO COURTESY OF BANK OF ENGLAND
First interest rate rise for 10 years
The official UK bank rate has been raised for the first time since July 2007, from 0.25% to 0.5%.
With UK growth steady at around 1.5% per year, and with CPI inflation at 3%, and unemployment falling to record lows, the Bank of England has concluded that the UK economy is strong enough to withstand this modest rise. The 0.25% increase, which followed a 7 to 2 vote by the monetary policy committee, is likely to be the start of a period of tighter monetary policy – or, as many are calling it ‘less loose’ monetary policy.
We can also conclude that the Bank of England is concerned that the unemployment rate is now close to its non-accelerating inflation rate. It must also be remembered that the drop from 0.5% to 0.25% was a response to the Brexit uncertainty which, while it still exists, has not led to the recession which was widely predicted. Of course, the Bank of England could argue that its looser monetary policy is part of the reason for the post-Brexit bounce.