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  • Bank of England hikes rates for the first time in a decade

    The Bank of England (BOE) raised interest rates for the first time in more than 10 years Thursday, a landmark move after borrowing costs had slumped to the lowest level on record.

    Alongside Governor Mark Carney, the majority of rate-setters at the U.K.'s central bank voted in favor of hiking the benchmark rate to 0.5 percent from 0.25 percent. The bank's key rate is crucial for the economy as it is used to price all sorts of bank loans and mortgages.

    Investors had
    widely expected a 0.25 percent move upwards in the interest rate, with the BOE now reversing the emergency rate cut announced in August last year in the wake of the Brexit vote.

    In one of the most closely watched interest rate decisions since the financial crisis, the BOE said it projected "very gradual" further increases over the next three years.

    The Bank said its nine rate-setters voted 7-2 to increase its benchmark rate. As expected, the two Monetary Policy Committee (MPC) members voting to keep borrowing costs unchanged were Jon Cunliffe and Dave Ramsden. However, most rate-setters decided it was the "appropriate" time to tighten monetary policy.

    "All members agree that any future increases in Bank Rate will be at a gradual pace and to a limited extent," the BOE said in a statement Thursday.

    Overheating economy?

    The BOE's decision to rate hikes Thursday sees the central bank fall in line with the U.S.
    Federal Reserve and to some extent the European Central Bank (ECB), which are either raising rates or beginning to scale back stimulus.
    However, while the U.S. and the euro zone are enjoying solid growth, Britain's economy has grown at its slowest pace since 2013 over the past 12 months.

    Ahead of the announcement Thursday, the BOE had expressed concern that the U.K.'s economy had been overheating, with inflation soaring to a five-year high of 3 percent in September and unemployment hitting multi-decade lows.

    The central bank has remained ultra-accommodative in the years since the global financial crash and also introduced U.S.-style quantitative easing (QE) buying assets to stimulate lending which is used to stoke inflation and boost the economy.

    But, the central bank strongly indicated in September that it was
    ready to reverse this policy of easing more than a decade after the U.K. saw its last rate hike in July 2007.

    BOE Governor Mark Carney is due to hold a news conference at 12.30 p.m. London time.

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