Bank of England raises interest rates to 0.75%

Wednesday 08th August 2018 02:30 EDT

The Bank of England has raised interest rates above the emergency level introduced after the financial crisis despite mounting fears about the economic impact of Britain crashing out of the EU without a deal. Citing concern that the lowest unemployment rate since the mid-1970s risked re-igniting wage pressure.

Governor Mark Carney told businesses and households there would be further increases in borrowing costs if economy continued to recover from a softer patch earlier this year, but he also signalled willingness to reverse the quarter-point increase in the event of a disorderly Brexit. He said, “If there is a major shift, then that could have consequences for monetary policy. We can adjust when necessary.” The pound fell on foreign exchanges over speculation the Bank would be blocked from tweaking the cost of borrowing until after Britain formally left the EU next March.

Charles Hepworth of the City Investment Management company GAM said, “The Bank of England's response in a few months' time could look very different should the Brexit cliff edge slip nearer despite them saying more hikes will be needed.” In delivering its verdict, the Bank's nine-member monetary policy committee voted unanimously for the increase, judging that the economy had bounced back from the effects of the “beast from the east” earlier this year.

Outlining its decision, the Bank said interest rates were unlikely to return to the levels seen before the financial crisis, when they were more commonly set above 5%. Any future increases in the cost of borrowing are likely to come at a “gradual pace and to a limited extent,” it said.

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