Bank of England raises interest rates

The cost of borrowing has been raised from 0.5% to 0.75%.

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously, by 9-0, to introduce only the second increase in 10 years.

And there will be both winners and losers.

Winners would include 45 million long-suffering savers, who have seen some interest rate improvements after the previous rise in November.

Those planning on buying an annuity to finance their retirement are also likely to benefit.

However, millions of households with variable or tracker rate mortgages are likely to see their payments increase once again.

Kevin Doran, chief investment officer at investment platform AJ Bell, said: “It feels like there is an element of the Bank of England reloading the interest rate gun in case we need an emergency Brexit-related cut next year.

“The UK economy is hardly charging ahead but, with interest rates at historic lows, Mark Carney and Co know that they have little room for manoeuvre should there be a stumble as we head towards the 29 March Brexit deadline next year.

“Today’s 0.25% point increase at least reloads one bullet.

“Whilst the increase is an improvement for savers, with inflation still being fuelled by a rising oil price and weak sterling, it is little help for the vast swathes of people whose purchasing power has been eroded by inflation comfortably outstripping the meagre interest earned on their savings.

“Let’s hope banks are quick to pass on the increase to at least provide some help to savers, although unfortunately this often doesn’t materialise.

“It will also not be welcomed by the vast numbers of UK borrowers, many of whom will only ever have known rock bottom interest rates and hence might be vulnerable to increases.

“From an investment perspective, a base rate of 0.75% is still exceptionally accommodative and is likely to continue to stoke asset prices as investors look for a real rate of return above inflation, something that is scarce in cash or Government bonds.”

Recent readings for the economy had painted a mixed picture for economic growth.

Survey data yesterday showed factory output falling to the lowest levels for 16 months in July, amid fears over Brexit and trade wars.

However, a wealth management expert said the overall strength of the economy, and its growth over the past five years, suggested that the UK could withstand higher interest rates, despite inflationary pressure.

Alex Brandreth, deputy CIO at wealth management experts Brown Shipley, also speculated that the decision to raise rates could be linked to the ongoing Brexit negotiations.

“Either the Bank of England feels increasingly confident that we will achieve a positive outcome from ongoing negotiations and growth will remain strong as a result.

“Or, the Bank is looking to inject some ‘firepower’ into the economy if we do face a bad outcome and is giving itself the flexibility to stimulate the economy in the not-so distant future.”

More follows