For the second time in a decade, The Bank of England has raised the interest rate.
The Monetary policy committee lifts the cost of borrowing to the highest level since 2009, while savers welcome the news. Risen by a quarter of a percentage point, from 0.5% to 0.75% – the new interest rates come as no surprise.
The decision means that the 3.5 million people with variable or tracker mortgages will pay more, as they will see their mortgage repayments increasing up to £300 per year.
Mark Carney, the Bank’s governor, foreshadows further “gradual” and “limited” rate rises to come. Responding to those opposed to the recent increase amid Brexit negotiations, Carney said “There are a variety of scenarios that can happen with Brexit… but in many of those scenarios interest rates should be at least at these levels and so this decision is consistent with that.”
Postponed due to the unforeseen weather conditions in May, the interest rate rise comes after a dip in the economy because of the ‘Beast from the East’. The Bank is now confident that economic growth will recover from the 0.2% rate seen in the first quarter, to 0.4% in the second quarter and maintain that pace later in the year.
Increased household spending is mainly the key indicator that the economy will pick up again soon, according to the Bank. In its Quarterly Inflation Report, the Bank said: “Although in the past year the number of retail closures has increased and retail footfall has fallen, contacts of the Bank’s agents suggest that mainly reflects shifts in consumer demand to online stores and from goods to services.”
More specifically, the Bank sees continuing “modest” economic growth of 1.4% this year and an increase to 1.8% next year. The unemployment rate is expected to fall further from 4.2% and wage growth is expected to pick up. It is important to note that inflation in England has fallen from its highest level in five years, and unemployment remains at its lowest level since the mid-1970s.