Bank of England Raises interest rates

Mark Carney, the governor of the Bank of England, today announced that interest rates had risen from 0.25% to 0.5%, the first rise in ten years. This comes with inflation having risen to 3% and the effects of the financial crash abating somewhat.

The raise will affect householders paying mortgages and will increase interest on loans, as the Bank of England hopes to discourage borrowing and extra spending with inflation currently too high, outpacing wages. However, critics say that the rise in inflation was in part due to the fall in the value of the pound and say this is shown by the lack of a vast increase in consumption or consumer confidence.

The main losers of this are set to be people with variable-rate mortgages. However many Brits saw the advantage of low interest rates and took out fixed rate mortgages while interest rates were low, meaning fewer households than usual have variable rate mortgages. Interest rates are still relatively low with them being incredibly lower than they have been for a long time. The following chart shows how low interest rates are compared to previous years:

As the economy is growing more interest rate rises are expected in the next couple of years, with “two or three” rate rises according to Mark Carney, expected to take rates up to 1%. This would still be considerably lower than any of the previous years for a while and it is still a good time to take out a loan or a mortgage. The economy is however growing “above its speed limit” according to Mark Carney and so spending needs to be curbed to prevent another economic shock.

However, with Brexit on the horizon the Bank is unwilling to raise interest rates by a large amount for fear that they may need to cut them to increase spending if there is an economic downturn due to poor negotiations which look likely. The government’s poor handling of the talks may well have effects for the rest of the country in our day-to-day lives as well as just for government revenue.

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