Interest rates rise and more on the way, says bank boss
The Bank of England has increased interest rates to their highest level for nearly 10 years and said further “gradual” rises are on the cards.
Members of the ninestrong Monetary Policy Committee voted unanimously to raise the base rate from 0.5% to 0.75% after the economy bounced back as expected from a snow-hit start to the year. 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.
Mark Carney, Governor of the Bank of England, said rates would need to rise further to bring inflation back to the 2% target over the next few years, but stressed hikes would be “limited” and “gradual”.
“Policy needs to walk – not run,” he said.
Millions of borrowers on variable rate mortgages will be affected by the latest hike, with a quarter-point rise adding about £16 a month or £190 a year to the average mortgage. How 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.
Mr Carney said: “UK growth in the second quarter is estimated to have rebounded as expected, consistent with the MPC’s judgment that the slowdown in the first quarter reflected the weather not the economic climate.”