UK interest rate rise

At its August meeting, all nine members of the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to increase the base rate by 0.25 percentage points to 0.75%.

This was only the second increase since July 2007 after which, as the financial crisis deepened, the interest rate fell steadily to reach 0.5% in March 2009. The rate then remained unchanged until August 2016, when it was cut to 0.25% following the Brexit vote, before reverting back to 0.5% in November 2017.

The rise was widely anticipated due to reasonably strong economic data and wages growth, however no further increase is expected until the middle of next year.

Inflation, as measured by the Consumer Prices Index (CPI), has risen slightly to 2.5% in July, as the cost of transport and computer games increased, offset slightly by a fall in the cost of clothing. The Bank of England expects inflation to gradually fall to around its 2% target over the next two years.

For mortgage holders with a tracker mortgage, the interest rate charged will increase almost immediately. Variable rate mortgages are slightly different as the rate is set by the lender, but it is very likely that these will increase also.

For savers, the rate increase is likely to be passed on a lot more slowly and not necessarily in full. Banks and building societies will react to competition in the market which doesn’t necessarily mean passing on the rate increase – so as ever it is well worth shopping around for the best deals.

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