Bank of England hikes interest rates to highest level since 2009

Merkel Macron

The Reserve Bank of India (RBI) on Wednesday announced a 25 basis points hike in repo rate to 6.5 per cent.

On Thursday the Bank of England raised the base rate of interest by 0.25 per cent, up from 0.5 per cent to 0.75 per cent, its highest level in almost a decade.

Naveen Kukreja, CEO and Co-founder, Paisabazaar.com: "Home loans will become costlier for fresh borrowers as and when the banks raise their respective MCLRs". Markets are already expecting a rise, and from here on in, further hikes are going to be few and far between because United Kingdom economic growth is so fragile.

Throughout his tenure as governor, Carney has faced accusations of being a so-called "unreliable boyfriend", frequently promising rate hikes and then ultimately failing to deliver.

Sir Dave Ramsden, one of the Bank's deputy governors, warned savers "never" to expect banks and building societies to fully pass on rate rises.

The Bank of England pushed interest rates above their financial crisis lows on Thursday but signalled it was in no hurry to raise them further with an uncertain Brexit on the horizon. If rates do go up to 0.75% that will be highest since early 2009.

In comments that will anger Brexiteers, the Bank of England Governor said Britain "accidentally" leaving the European Union without a deal and no transition in March 2019 would be "highly undesirable" for the economy.

In the last review, inflation for 2018-19 was projected at 4.8-4.9 per cent in the first half and 4.7 per cent in the second half, including the HRA impact for central government employees, with risks tilted to the upside.

The interest rate rise should come as good news to cash savers, who've not seen much return on their money. The interest rate was hiked to 6.5 percent last time in April 2016.

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"The average two-year fixed mortgage rate however was significantly higher back in February 2009, standing at 4.88%, compared with just 2.53% today".

Fixed-rate mortgages started to rise after November's increase.

Five members of MPC - Chetan Ghate, Pami Dua, Michael Debabrata Patra, Viral V Acharya and Urjit R Patel voted in favour of the decision while Ravindra H Dholakia voted against the decision.

He added: "With interest rates down at 0.50%, the Bank of England would clearly likely to gradually normalise monetary policy given that it is essentially an emergency low rate".

The Bank of England will also release its latest forecasts for economic growth, jobs and inflation on Thursday.

Reports suggest that RBI has kept the GDP forecast for the current fiscal unchanged at 7.4%.

But the resulting fall in Pound Sterling - still under enormous threat as Brexit concerns weigh on the currency - was based on the BOE's slow stance to catch up with other central bank hawks.

Adjusted for the BoE's inflation target, this would imply Bank Rate of 2-3 percent to keep growth and inflation rates stable when the economy is running at full capacity.

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