Bank of England ups rates by 0.25 per cent

Bank of England ups rates by 0.25 per cent

Interest rates have been increased by the Bank of England for only the second time in a decade.

Guy Foster, Brewin Dolphin’s head of research, said: “The MPC took the opportunity to raise interest rates despite an easing inflationary outlook. This is a sensible precaution because they probably won’t want to do so in the heat of Brexit negotiations and there’s certainly a scenario in which they will want to be easing again by next Spring if talks don’t go well.”

Nick Dixon, Investment Director at Aegon, said: “Two factors have driven today’s rate increase. First inflation is stubbornly above the Bank’s 2 per cent target, and secondly wage pressure is adding to future inflation expectations.

“Looking forward two factors will be critical in determining future interest rates. First the final Brexit trade deal will impact the level of sterling and hence inflation. Second is the labour market and whether wage pressures intensify, especially in the public sector, become embedded and strengthen inflationary trends. If sterling depreciates and wage increases lead to higher prices, there will be pressure for interest rates to rise higher and faster than markets currently expect.”

However, Liz Cameron, chief executive and director of Scottish Chambers of Commerce, said the move was “disappointing” coming as it was, in her opinion, “in the absence of conclusive evidence that now is the right time to do so for the UK economy”.

She said: “The unanimous decision of the Monetary Policy Committee comes at a time when inflation has been falling towards target, and much of the current pressures holding it at current levels are driven by external factors, such as the value of sterling and energy prices.

“The Bank of England must tread carefully when it comes to further changes in interest rates at the ‘gradual pace’ they outline. Whilst businesses continue to trade, despite challenging political uncertainty, it is critical continued investment is made to plug skills gaps in the workforce and improve digital and physical infrastructure. Recent labour market data illustrated that pay rises are only just managing to outpace inflation, so this increase is likely to do little to encourage consumer confidence among the millions of Britons with variable rate mortgages. It is also unlikely that this change will provide much benefit to savers, or any lasting boost to the value of the pound, with currency markets much more concerned about further clarity in the Brexit negotiations.

“Future changes in the base rate must be conducted with a keen eye on the economic data and sentiment of businesses and consumers across the UK. There is no appetite for interest rates to return to pre-crisis levels amongst business or consumers, and the Bank of England must carefully consider what the ‘new normal’ should be for both the pace and level of interest rate rises.”

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