Sat, Nov 04, 2017 - Page 10 News List

BOE raises interest rates for first time in a decade


The Bank of England (BOE) has raised interest rates for the first time in a decade to contain an increase in inflation stoked by the Brexit vote, in what is otherwise a moment of high uncertainty for the economy.

In a statement on Thursday, the bank said it had lifted its benchmark rate, which affects the cost of loans and savings rates in the wider economy, to 0.50 percent from the record low of 0.25 percent.

The hike, which had been widely anticipated in financial markets, is the first since July 2007, when world credit markets started to freeze up in what would prove to be the prelude to the global financial crisis.

However, the impact on households and companies is likely be modest, as 60 percent of homeowners are on fixed-rate mortgages and the cost of borrowing remains very low by historical standards. A decade ago, for example, the key rate was hiked to 5.75 percent.

Minutes of the meeting showed that seven members of the nine-strong Monetary Policy Committee judged it “appropriate to tighten modestly the stance of monetary policy” to return inflation to target.

Inflation, according to the central bank’s quarterly projections, should fall toward target, to 2.1 percent, in three years — if interest rates rise in the way markets expect, to 1 percent over that period.

Despite the hike, the majority on the bank’s committee said that “monetary policy continues to provide significant support to jobs and activity in the current exceptional circumstances” and that future increases should be gradual and limited.

“In many respects, the decision today is straightforward: With inflation high, slack disappearing and the economy growing at rates above its speed limit, inflation is unlikely to return to the 2 percent target without some increase in rates,” Bank of England Governor Mark Carney said.

In spite of that backdrop, rate-setters were faced with a dilemma as the British economy has come off the boil. It is the slowest-growing among its peers in the G7 industrialized democracies and businesses and households are becoming more cautious amid uncertainty over Britain’s future relations with the other 27 EU nations.

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