This afternoon, for the first time in 10 years, the Bank of England (BoE) has raised interest rates. The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007.
The decision hasn’t come as a shock, especially as several strong hints have been dropped over the last few months. Immediately after the announcement, Sterling was trading around 0.4 per cent lower against the Euro and around 0.2% lower against the Dollar. Throughout the day it has continued to drop, with Sterling to Euro exchange now sitting at 1.1271 down 1.16% while the Dollar is at 1.3132 down 0.92%.
It was also anticipated by the BoE that by 2019 interest rates will have risen to 1 per cent, and it is expected that inflation will be reasonably under control by then. The financial market is predicting two more interest rate increases over the next three years. However the Monetary Policy Committee (MPC) have stated that “future increases in the bank rate would be expected to be at a gradual pace and to a limited extent”. Deputy governors Dave Ramsden and Jon Cunliffe were the two members of the MPC who against the raise. Ramsden and Cunliffe argued that “there was insufficient evidence so far that domestic costs, in particular wage growth, would pick up in line with the central projection”.
The BoE also said its predictions are centered around the assumption of a “smooth adjustment” of the UK economy to Brexit. Yet this is something that has become increasingly doubtful over the past few weeks by the failure of the government to make any significant progress in it’s negotiations with the EU. This statement from the BoE infers that if the economy demonstrates any further signs of weakness, future rate hikes will be delayed.
The BoE thinks that for the majority of British households the rise will have a minor effect, because most home owners have a fixed rate mortgage, meaning that rates increases will take time to have an affect. People with variable rates will be impacted by the rise straight away, however on the flip-side pensioners considering whether or not to buy an annuity will see better deals.
With Sterling dropping again today, and further uncertainty looming, it’s even more vital than usual to get the best deal on any overseas payments your business makes. By using a forex comparison service like Kwanji, you’ll be able to receive transparent FX pricing that unlocks massive savings. This in turn protects your margins and ultimately your bottom line.
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