The Financial Express

Bank of England hikes interest rates

The increase is expected to dampen economic activity over the coming months

| Updated: November 09, 2017 23:51:41

Bank of England hikes interest rates

Bank of England raised interest rates for the first time in over a decade despite the fact that wages are growing weakly in the UK and the country faces the growing threat of a disastrous ‘no deal’ Brexit in March 2019.

The Bank’s nine-person Monetary Policy Committee voted by a margin of seven to two to increase rates from their historic low of 0.25 per cent to 0.5 per cent.

It was the first hike of rates from UK’s central bank since July 2007, before the financial crisis and marks an important milestone in monetary policy, says a report on The Independent UK.

The increase in the cost of borrowing will have an immediate impact on millions of households with variable rate mortgages and is expected to dampen economic activity over the coming months, even as the economy slows ahead of the UK’s scheduled departure from the EU in March 2019.

The hike had been almost universally expected by financial markets, after the MPC had previously signalled in August that it was likely to increase rates by the end of the year if the economy developed as expected.

The minutes of the MPC meeting cited signs of a pick up in “domestic inflationary pressures” and “persistent weakness in productivity growth” as the main justifications for its rate hike.

Inflation hit a five-year high of three per cent in September and the Bank expects its rate hike to help bring it back to slightly above the Bank’s official two per cent target by 2020.

However, the Bank said its forecasts are based on the assumption of a “smooth adjustment” of the UK 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.

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