Interest rates hiked above 0.5% for first time since financial crisis
Threadneedle Street said further increases will come gradually and to a 'limited extent'
The Bank of England has raised interest rates above 0.5 per cent for the first time since March 2009, taking the base rate to 0.75 per cent.
The first hike in more than nine years comes after much anticipation from markets, which were pricing in a 90 per cent chance of a rate increase ahead of the announcement, but few specific signals from the Bank.
The monetary policy committee voted unanimously, 9-0, to raise the rate by 0.25 percentage points, and said future increases are “likely to be at a gradual pace and to a limited extent”.
The MPC added that it “continues to recognise 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”.
The pound had been trading down 0.4 per cent against the dollar ahead of the announcement, but sharply began to reverse those losses just after midday.
Threadneedle Street upgraded its growth predictions for the UK economy to an estimate of 1.8 per cent in 2019, up from the 1.7 per cent predicted in May.
The Bank also reported that inflation rose to 2.4 per cent in June, above the 2 per cent target due to “ external cost pressures resulting from the effects of sterling’s past depreciation and higher energy prices”.
Business groups hit out at the decision to hike rates, saying the move "risks undermining confidence at a time of significant political and economic uncertainty".
When the BoE’s rate-setting committee last met, three of nine members voted for a rise to 0.75 per cent. Notably, among those voting in favour of a hike was Andy Haldane, the central bank’s chief economist, who went against the majority for the first time ever.
Interest rates fell from 5 per cent to 0.5 per cent in the period between October 2008 and March 2009 when Britain was in the grips of recession. The base rate remained there until August 2016 when, in the aftermath of the Brexit vote, the Bank cut it again, to 0.25 percent. In November last year, the rate was brought back to 0.5 per cent.
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