Expectations of a strengthening UK economy, solid employment levels, more consumer spending and the potential for wages to rise have all played a part in the decision by the Monetary Policy Committee (MPC) of the Bank of England (BOE) to raise the base rate from 0.5% to 0.75%. The increase announced on 2nd August is the first since November ‘17 when interest rates rose from 0.25% to 0.5%.
The MPC’s main priority is to keep the rising cost of living under control, known as inflation. It uses the base rate as the reference point for how much commercial banks and building societies pay savers and charge borrowers in interest. The MPC voted 9-0 to raise the bank rate and said that future rises "are likely to be at a gradual pace and to a limited extent".
The 3.7 million households on variable and interest-only mortgages will be worst affected by the August rate rise, with monthly mortgage payments increasing by about £12 per month based on an average outstanding balance of £89,000, according to UK Finance. The rise may also force landlords to increase their rent.
UK economic growth is expected to remain modest due to the drag on business investment from ongoing economic and political uncertainty relating to the outcome of the Brexit negotiations.
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