Bank of England raises interest rates

Meeting on Thursday, the Monetary Policy Committee of the Bank of England voted to raise interest rates in the UK to 5.75 percent. This is the fifth time the MPC has raised rates since August 2006 and is the highest level rates have reached in six and a half years.

In the statement released with the rate decision, the Bank said that pressure toward inflation remained “elevated”, which some analysts interpret as meaning that there will likely be another rate hike before the end of the year.

The business community worries that the new rate hike is too much too soon, with the British Chamber of Commerce said that the Bank should have waited to see what effect recent rate hikes will have on the economy before raising rates yet again.

The Royal Institute of Chartered Surveyors worried that the rate hike will negatively impact the housing market by decreasing demand, especially among first-time buyers.

While there are signs that house price growth is beginning to slow, new data on the services sector saw activity up in June.

Additionally, while the consumer price index dropped to 2.5 percent in May, that is still 0.5 percent above the government target of 2 percent.

The rate hike was especially bad news for anyone paying on a mortgage: it is estimated that the new increase will add £16 per month to the payment on a £100,000 mortgage.

Discuss this in the Finance Markets forums

Story link: Bank of England raises interest rates