As a result, many consumers are likely to face higher mortgage interest repayments. Savers and retirees, however, potentially stand to gain from the rise: savings rates are likely to improve.
The Monetary Policy Committee (MPC) stated that the decision to increase rates was made as a result of rising inflation, low unemployment levels and strong global economic growth. Inflation currently stands at 2.8% – significantly higher than the BoE’s 2% target.
In a statement, the BoE said: ‘The MPC . . . judges it appropriate to tighten modestly the stance of monetary policy in order to return inflation sustainably to the target. All members agree that any future increases in the bank rate will be at a gradual pace and to a limited extent.’
Mark Carney, the Governor of the BoE, suggested that many mortgages, credit cards and loans would not be impacted in the short-term. He also indicated that two more interest rate rises may be required by 2020 to help bring inflation back to the BoE’s target.
Commenting on the rise, Rain Newton-Smith, Chief Economist at the Confederation of British Industry (CBI), said: ‘The decision to raise interest rates comes as no surprise, given the recent signals from the Bank and several MPC members, signalling their intention to vote for a change of course.
‘Businesses will be watching the reaction of consumers closely, and what’s important is the pace of any future rises. As rates creep up, it’ll be important to keep an eye on the impact for those at the lower end of the income scale.’
The Federation of Small Businesses (FSB), however, did not welcome the increase. Mike Cherry, its National Chairman, stated that the rise ‘will mean more cost pressures for small firms’.