As expected, Bank of England raises interest rates

The Bank of England raised the base interest rate from 0.5 per cent to 0.75 per cent on Thursday - only the second increase in a decade and the highest level since 2009.

Financial buildings and institutions in London illustrate an article about UK interest rates
The move, which was widely expected and received the unanimous backing of the bank's Monetary Policy Committee, will increase costs of more than three million and received a mixed reception from British business leaders and analysts.

UK Monetary Policy Committee comments on the interest rate hike

Minutes from the MPC meeting said: "Since the May report, the near-term outlook had evolved broadly in line with the MPC's expectations."Although the global outlook was a little softer, recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter."The labour market had continued to tighten and unit labour cost growth had firmed. Given these developments, a 0.25 percentage point increase in bank rate was warranted at this meeting to return inflation sustainably to the target."The committee also suggested further rises were likely, although it said Brexit remained the most important consideration for the future.

Mark Carney, Bank of England governor, also comments on UK interest rate rise

Mark Carney, the Bank of England governor, said: "Rates can be expected to rise gradually. Policy needs to walk - not run - to stand still. The MPC will respond to any persistent change in the outlook to bring inflation sustainably back to the two per cent target while supporting jobs and activity."That is how we set policy two years ago, it is how we are setting it today and it is how we will do so in the future."The committee recognises that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal."

Suren Thiru, of the British Chambers of Commerce, condemns decision to raise rates

However, Suren Thiru, head of economics at the British Chambers of Commerce, condemned the decision to raise rates at this time.“The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy. While a quarter point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty," he said.“The increase reinforces a concerning aspect of the Bank of England’s recent approach to monetary policy, which appears to be overly focused on reinforcing an idealised direction for rates, rather than on economic reality – an approach that unnecessarily risks UK’s growth prospects.“The MPC must carefully consider what happens next. The most preferential option would be for a sustained period of monetary stability amid the current economic and political uncertainty.”

Alpesh Paleja, of the CBI, supports the decision to raise UK interest rates

But Alpesh Paleja, principal economist at the Confederation of British Industry, said: “This decision was in line with our expectations. The case for another rate rise has been building, with inflationary pressures being stoked by a tight labour market and many indicators now suggesting that weak activity in the first quarter of 2018 was a blip.“The Monetary Policy Committee has signalled further rate rises over the next few years, if the economy evolves as they expect. These are likely to be very slow and limited, particularly over the next year as uncertainty around Brexit takes its toll on business investment.”

PwC's Andrew Sentance weighs in on the UK interest rate rise

Andrew Sentance, senior economic advisor at PwC, added: "This is hopefully the first step on the road to a more normal level of interest rates - following the lead from the US Federal Reserve."The UK economy is now in the tenth year of economic recovery and the unemployment rate is at its lowest level for over 40 years. So, there is no obvious reason for delaying the gradual rise in interest rates which the MPC has been talking about for some time."Looking ahead, we should expect to see further interest rate rises over the next 2-3 years, taking the official bank rate to around two per cent or a bit higher. While there are uncertainties surrounding Brexit and protectionist pressures in the world economy, these worries should not be allowed to throw monetary policy off course."Businesses and consumers should be able to adapt to a well-communicated and gradual series of interest rate rises after nearly a decade of exceptionally low borrowing costs. Higher interest rates should also provide some much-needed relief to savers who have seen their investment returns eroded significantly since the financial crisis."For related news and features, visit our Finance and Enterprise sections.Relocate’s new Global Mobility Toolkit provides free information, practical advice and support for HR, global mobility managers and global teams operating overseas.Access hundreds of global services and suppliers in our Online DirectoryClick to get to the Relocate Global Online Directory

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