Bank of England hikes rates for first time in 10 years
Bank of England hikes rates for first time in 10 years
Bank governor Mark Carney voted against a rate hike at the last meeting
05 November, 2017, 02:18
Britain's economy appears to be picking up speed, according to a survey on Friday that will reassure the Bank of England a day after it raised interest rates for the first time in a decade.
A number of banks and building societies have already announced they will be increasing their rates in line with the rise announced by the Bank of England today.
A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending.
In 2017 the British economy has been the slowest growing economy in the EU.
"Market uncertainty has impacted both the residential and commercial development pipeline in London and the South East, which have been stuck in limbo since last year's European Union referendum, and if this measure can bring down inflation, particularly in construction costs, this is good news".
But the Bank also said its forecasts are based on the assumption of a "smooth adjustment" of the United Kingdom economy to Brexit, something that has been thrown into increasing doubt by the failure of the Government to make any substantive progress in its Article 50 divorce negotiations with the European Union.
Monthly data on Britain's dominant services industry, expected at 0930 GMT on Friday, may provide more clues about the health of the economy and the outlook for further hikes.
Some predict rates could rise again as soon as February, but others expect there will be a pause until at least later in 2018.
When there is more demand for goods and services than there is supply, inflation tends to rise above 2%.
Bank of England policymakers voted by a majority of 7-2 to raise rates by 25 basis points from a record-low 0.25 per cent after a regular gathering, mirroring policy tightening seen in the United States and eurozone.
"This month's MPC decision is an important signal to the public that the era of very low interest rates is coming to an end".
Generally, higher interest rates encourage saving by raising the incentive to put money in the bank. The opposite occurs when interest rates are increased. However, it is now mulling a gradual path of monetary policy tightening to combat inflation rising far above the central bank's 2 per cent target.
The move reverses the cut in August of past year - made in the wake of the vote to leave the European Union.
Consumer Prices Index (CPI) inflation hit 3% in September - its highest level for more than five years - and the Bank has warned it could rise further still. The economy has proven more resilient than feared, but has clearly weakened.
The bank's Monetary Policy Committee (MPC) voted for the rise at a majority of 7-2.
In its Quarterly Inflation Report, released with the announcement on rates, the Bank estimated inflation was likely to peak this month at 3.2%.
Sterling is set to remain volatile due to Brexit uncertainty.
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