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- Bank of England raises interest rates for the first time in more than a decade. Rates increased from 0.25% to 0.5% – reversing rate cut made in the aftermath last year’s Brexit vote. Hike had been widely trailed by the bank and was expected by markets. Governor Mark Carney will speak to the press at 12.30 p.m. GMT (8.30 a.m. ET).
LONDON – The Bank of England on Thursday raised interest rates for the first time in more than 10 years, as had been widely expected by market watchers around the world.
The majority of the central bank’s ratesetting Monetary Policy Committee voted to raise the UK’s base rate of interest from 0.25% to 0.5%. Rates had previously stood at 0.5% for seven years between 2009 and 2016, before being cut to 0.25% last August in the aftermath of the Brexit vote.
Seven members of the committee voted to raise rates, out of nine. John Cunliffe and Dave Ramsden voted to keep rates at 0.25%.
“With unemployment at a 42-year low, inflation above target and growth just above its new, lower speed limit, the time has come to take our foot off the accelerator,” Bank of England Governor Mark Carney said.
“To ensure a sustainable return of inflation to the target we have raised interest rates from 0.25% to 0.5%. That means taking our foot a little off the accelerator, reducing slightly the amount of support we are providing to the economy,” the Bank of England said in a statement on its website.
Andrew Sentance, senior economic adviser at PwC, said the central bank was “right to raise interest rates, even though economic growth has been relatively disappointing so far this year.”
“Other economic data – in particular high Inflation driven by the weakness of the pound and the low level of unemployment – are much more supportive of a rise in interest rates,” said Sentence. “In addition, the MPC faces a long-term challenge of raising interest rates back to some sort of normal level after an exceptional and unprecedented decade of low rates since the financial crisis.”
With inflation rising to 3% in September and GDP growing at a steady but unspectacular rate of 0.4% in Q3, the bank – which had signalled strongly in recent months that it would look to increase rates in November – seemingly had little choice to increase rates back to their previous level.
Analysts and forecasters were pretty much unanimous that a hike was coming. Of the dozens of research notes from major banks, asset managers and research houses seen by Business Insider in the run up to the decision, not a single one saw anything other than a hike on Thursday.
Many, however, have questioned the expediency of raising rates in an environment where the UK’s economic relationship with the European Union remains unclear, and growth is well below the level that previously would have seen rate hikes – generally around 0.6%-0.7% per quarter.
The bank had to balance those concerns with the fact that inflation is 50% above its target level, and could rise further as the pound’s drop since the Brexit vote filters into import prices.
Alongside its decision to raise rates, Britain’s central bank also released its quarterly Inflation Report, providing an update of its forecasts for overall economic growth and inflation.