The Bank of England has raised the UK interest rate by a quarter of one percent, from 0.5% to 0.75%.
Expectations of a strengthening economy, growing employment levels and increased consumer spending have all contributed to the decision.
The move comes after the Bank’s Monetary Policy Committee announced that economic growth will recover from the 0.2% rate seen in the first quarter, to 0.4% in the second quarter. The financial markets have taken this on board and are forecasting one, and perhaps two rises of 0.25% before 2020
The rate rise is at its highest level since March 2009, and only the second increase in a decade.
As is the case, the move will raise the interest costs of more than 3.5 million half million residential mortgages with variable or tracker rates. However, today’s announcement will encourage savers, who could see a rise in their personal interest rates in the coming months.
The Bank of England was expected to raise interest rates in the middle of May but resisted because of weak growth- partly caused by harsh weather conditions during the ‘Beast from the East’ phenomenon.
The Bank is sticking to its guidance that interest rates will continue to only head higher, but at a gradual pace and to a limited extent.
Analysis from Oliver Murphy- Editor
As is the case with interest rates, there will be those who benefit and those who do not.
The rate rise will certainly come as a shock to the 3.5 million people with variable or tracker rate mortgages. Indeed, on a £150,000 variable mortgage, for example, a rise to 0.75% is likely to increase the annual cost by £224.
Of course, in terms of monetary policy, the Bank’s move is in accordance with its main priority- to reduce the cost of living (inflation). Generally, a rise in the Bank rate is good for savers and negative for borrowers – but the reality is a bit more complex.
Indeed, the Bank may well have jumped the gun by raising the interest rate now. The rise will undoubtedly threaten lowering consumer and business confidence at an already fragile time. According to the Institute of Directors: “Growth has remained subdued, and the recent partial rebound is the least that could be expected after the lack of progress in the year’s first quarter.”
With the outlook for the global economy uncertain, only time will tell us of the impacts of this rise.