The Bank of England has raised interest rates to 0.75%, the highest level since the financial crisis
The Bank of England has raised interest rates to 0.75% – the highest level since the financial crisis – after a unanimous decision by its rate-setting committee. In a hugely symbolic day for the Bank of England, the Monetary Policy Committee voted to increase the rate from 0.5% in only the second rate rise in a decade.
Today’s rise will push up mortgage payments for around 3.5 million customers with variable and tracker rate loans by an estimated £400 a year and may offer some relief to savers on rock-bottom rates.
The MPC said that any future increases “are likely to be at a gradual pace and to a limited extent” and said that the outlook for the economy could be “influenced significantly” by Brexit.
Bank of England governor Mark Carney, who chairs the MPC, said that while the outcomes from the Brexit talks was not known, it was consumer and business reaction to the UK’s exit from the EU that would help determine the future path of rates.
“Thus far British householders have been resilient but not indifferent,” said Carney.
Interest rates were cut to 0.5% in March 2009 when the markets were in the grip of the banking crisis and remained at that level until August 2016 when they were cut to 0.25% in the aftermath of the EU referendum. In November last year, rates were increased back up to 0.5%.
The debt charity StepChange warned that the rate rise would have an impact on its already struggling customers with mortgages, leaving one in ten having more money going out than coming in.
Phil Andrew, chief executive at StepChange, said “many households are walking a precarious budget tightrope”.
“Policymakers mustn’t lose sight of what a rate rise means for real people on a tight budget,” said Andrew.
Carney countered that, saying households have paid back a lot of debt while rates have been so low and cited research showing that interest rates could rise two full percentage points before their debt-service levels went back to historic levels.
Businesses were also concerned about the impact of higher borrowing costs. Tej Parikh, senior economist at the Institute of Directors, said the bank had “jumped the gun” and said the MPC should have held off until November.