The Bank of England has announced that it will raise interest rates for the first time in a decade. Base-line interest rates in the UK will now stand at 0.5 percent, up from an all-time low of 0.25 percent. The bank began cutting rates in 2007 to stimulate lending during the financial crisis with the last cut coming in August 2016 to shore up confidence in the economy after the vote to leave the European Union. The slide in the value of sterling since the referendum, at one point reaching a 31-year low, and the consequent rise in prices is what prompted the central bank’s decision today.
The effect of the modest rate hike on overall interest rates will likely be gradual, as the some of the UK’s largest mortgage providers, like Lloyds Bank and HSBC have said they will not be making any immediate changes to their fixed rates. Moreover, only 43 percent of mortgage holders now have tracker mortgages, the lowest proportion in history. The remainder of households who have fixed-rate mortgages will not be affected by the rate rise. HSBC said that “on average, those with an HSBC tracker mortgage with £100,000 balance would see a monthly increase of £12 per month and an increase of £24 for those with a £200,000 outstanding balance.”
Savers, who have seen the interest payments on their deposits diminish with each rate cut will welcome the improved returns on their savings that the rate raise will bring. However, Frances O’Grady, the head of Britain’s federation of trade unions, the TUC, criticised the central bank’s decision saying that it will hit the those who are already struggling with debt. “This is the last thing hard-pressed families need. With living standards falling, the economy needs boosting not reining in,” she said.
Sterling fell by more than one percent against the dollar on the back of comments from Central Bank Governor Mark Carney that this would probably be the last rise in interest rates for some time, meaning that today’s rise should not be taken as the beginning of an aggressive intervention on behalf of the currency.