Bank of England increases interest rates to highest level since 2009

Thursday, August 2, 2018

The Bank of England has increased interest rates to their highest level for nearly 10 years after the summer heatwave helped the economy bounce back from a snow-hit start to the year.

Members of the nine-strong Monetary Policy Committee (MPC) voted unanimously to raise the base rate from 0.5% to 0.75%.

The move sees rates rise above the emergency low of 0.5% for the first time since March 2009 and marks only the second hike since the financial crisis, after last November's quarter-point increase.

Minutes of the Bank's rate meeting signalled there would also be further rises to come as policymakers look to bring inflation back to target, although they continued to stress that these would be "gradual" and "limited".

Millions of borrowers on variable rate mortgages will be affected by the decision, with a quarter-point rise adding around £16 a month or £192 a year to the average mortgage.

But it will offer some relief to savers, who have seen their nest eggs decimated by above-target inflation and negligible returns.

The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2% in the first quarter, but said the economy had recovered as predicted.

It forecasts that growth rebounded to 0.4% in the second quarter, with data pointing to a similar rate of growth between July and September.

In the minutes of the MPC's meeting, the Bank said: "Recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter."

The pound made gains versus the euro following the rate increase up by nearly 0.3% at 1.128, but was still trading lower by around 0.1% against the US dollar at 1.311.

In its accompanying quarterly inflation report, the Bank kept its forecast for growth this year unchanged at 1.4%, but increased the outlook for 2019 to 1.8% from the 1.7% previously predicted.

It continued to pencil in growth of 1.7% for 2020.