Bank of England increases bank rate to 0.5 percent

Bank of England increases bank rate to 0.5 percent

In addition to the uncertainties that still remain over Brexit, the rate hike can be seen as part of a wider global monetary policy that will likely negatively affect the strong returns United Kingdom real estate has experienced in the last few years.

The Bank of England has hiked interest rates by 0.25 percent in its first such rise in more than a decade.

The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007.

Sterling has been on the up this week, as markets prepare for a potential interest rate hike.

Nearly four million households face higher mortgage interest payments after the rise, but it should give savers a modest lift in their returns. The two dissenters thought a hike wasn't warranted yet, and the majority isn't exactly bullish on the prospects for the British economy.

A quarter-point rise will only take rates back to where they were before the last cut in August 2016, meaning that any impact is expected to be modest.

People with variable rate mortgages will be hit by the hike, with around one in 10 households now using this mortgage type.

But the Bank also said its forecasts are based on the assumption of a "smooth adjustment" of the United Kingdom economy to Brexit, something that has been thrown into increasing doubt by the failure of the Government to make any substantive progress in its Article 50 divorce negotiations with the European Union.

Ian Kernohan, economist at Royal London Asset Management, believes that further hikes will depend on Brexit.

Bank of England policymakers voted by a majority of 7-2 to raise rates by 25 basis points from a record-low 0.25 per cent after a regular gathering, mirroring policy tightening seen in the U.S. and eurozone.

Some predict rates could rise again as soon as February, but others expect there will be a pause until at least later in 2018.

"This month's MPC decision is an important signal to the public that the era of very low interest rates is coming to an end". Some lenders may well be prepared to absorb rate increases into their margins, as they are still chasing business.

Policymakers voted 7-2 to tighten borrowing costs to 0.50 percent from a BoE record low of 0.25 percent as a weak pound caused by Brexit uncertainty has hiked the cost of imports into Britain and in turn sent the country's inflation rising far above the central bank's target.

The move reverses the cut in August of previous year - made in the wake of the vote to leave the European Union.

The MPC expects inflation to peak above 3 per cent in October as the weakening of sterling and increases in energy prices are passed to the consumer.

This suggests the economy is stable and no longer in need of the emergency boost delivered by the Bank after last year's Brexit vote.

Businesses are unsure about the outlook, and optimism among services companies remained well below its long-run average, fuelled mainly by uncertainty over Brexit, the PMI data showed.

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