London, Aug 2 (IANS) The Bank of England (BoE) on Thursday raised its key interest rate by a quarter of a percentage point, from 0.5 per cent to 0.75 per cent — the highest level since March 2009.
It is only the second increase in the bank rate since July 2007. The move will increase the interest costs of more than three-and-a-half million residential mortgages that have variable or tracker rates, the BBC reported.
The bank’s nine-member Monetary Policy Committee (MPC) voted unanimously for the increase, judging that the economy had bounced back from a soft patch earlier this year triggered by the freezing weather and heavy snowfall from the “beast from the east”, according to the Guardian.
While warning Brexit could blow the economy off course, the MPC said recent readings for economic growth “appear to confirm that the dip in output in the first quarter was temporary, with momentum recovering in the second quarter”.
The BoE said in a statement that the committee “continues to judge that the UK economy currently has a very limited degree of slack” and labour demand growth remains “robust”.
This reflects tightening in the labour market, with indicators of pay growth strengthening and pay growth projected to rise further. That combined with subdued productivity growth, is contributing to rising domestic cost pressures, the bank said.
Decision makers said that Consumer Price Index (CPI) inflation was currently 2.4 per cent (the latest figures in June), above the BoE’s target of 2 per cent.
The Bank’s latest decision came amid growing fears over Brexit, with Prime Minister Theresa May facing parliamentary divisions over her plan.
Raising interest rates will mean higher borrowing costs on mortgages and loans for hard-pressed consumers and businesses as they adapt to Britain leaving the EU, the daily said.
John McDonnell MP, the shadow chancellor, said the rate rise would be bad news for hard-pressed households: “Given recent revelations that households are spending more than they receive in income for the first time since 1988, today’s rise will be a blow to those facing high levels of personal debt.”
The British Chamber of Commerce said the increase was ill-judged and could hit confidence in the economy.
Suren Thiru, head of economics at the BCC, said: “The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy… It risks undermining confidence at a time of significant political and economic uncertainty.”