The Bank of England has lifted interest rates by 0.25% to 0.5%, this is the first rate rise since 2007. Nearly 4 million households face higher mortgage payments, while savers will see a boost in their returns.
The governor of the Bank of England Mark Carney also signalled that interest rates are likely to rise further over the next years.
The Monetary Policy Committee (MPC) which is charge of setting rates have justified the rate increase by pointing out rising inflation, record-low unemployment and stronger global economic growth. Out of 9 MPC members 2 voted against the increase, but 7 members including the governor Mark Carney voted for increase.
Impact on currency markets
The British pound dropped by more than 1% against the euro and dollar in response to future increase in interest rates being lower than some economist were expecting. The pound fell more than a cent against the two currencies to €1.1280 and $1.3130 respectively.
Impact of Brexit
Mr Carney has said that there is a noticeable impact on the economic outlook due to decision to leave the European Union. The impact of Brexit on investments and workers appear to be holding back growth while elsewhere in the world it is booming.
The governor also argued that the Brexit talks are most likely to be the biggest factor for the further change in rates, either up or down. “We’re going to be in exceptional circumstances for a period of time, certainly until there’s clear resolution of the future relationship [with the EU], and even then, maybe longer than that,” he said.
Corporate bodies said that this rise was expected, but have warned that business could be hit if the further rise in rates would come too soon.