Interest Rate Rises for First Time in More Than a Decade

Monetary Policy Committee voted to increase base rate to 0.5%

The Bank of England has voted to increase the base interest rate in the UK, ending more than a decade of interest rate cuts.

 

The decision, made by the Bank of England’s Monetary Policy Committee (MPC), increased the interest rate from 0.25% to 0.5%, reversing the emergency rate cut made in August 2016 in the aftermath of the Brexit referendum last year.

 

Citing the continuing weak performance of sterling and rising costs for households as core reasons for the decision, Bank of England Governor, Mark Carney, said that today’s increase marks the first of three rate increases over the next three years, but that these would be limited and gradual.

 

Rising interest rates would help to support the value of the pound in the markets, whilst providing savers with greater incentive. However, Mr Carney warned that the change would make the cost of borrowing more expensive.

 

The rise follows the publication of September’s Consumer Price Index (CPI) which showed that inflation in the UK had reached a level of 3%. The Bank – and the MPC – are targeted to maintain a CPI of 2% to prevent the economy from overheating.

 

In addition to sluggish productivity levels in the UK, Mr Carney said that ‘the decision to leave the European Union is already having a noticeable impact’ on the UK’s economy.

 

In the report accompanying the MPC’s decision, the group highlighted that ‘Brexit-related constraints on investment and labour supply appear to be reinforcing the marked slowdown that has been increasingly evident in recent years in the rate at which the economy can grow without generating inflationary pressures.’