RBI monetary policy: Repo rate hiked by 25 bps

Eileen GuzmanAug 05, 2018

The last time the BoE raised rates by a quarter of percent in November, the average rate on an easy access account went up just 0.07 percent between September 2017 and this week.

It would also take the so-called Bank Rate to its highest level since 2009.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said: "With the vast number of lenders increasing rates in the lead up to May's rate announcement, providers have chosen to keep rates relatively static in the run-up to this one, having already been prepped for a rise".

Economists polled by Reuters had mostly expected a 7-2 vote in favour of raising rates.

Based on an overall assessment, it said, GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent in first half and 7.3-7.4 per cent in second half, with risks evenly balanced. Five votes are needed to change policy.

Markets are pricing a more than 90% chance of a hike but UBS strategist John Wraith says a hike on Thursday is an "unnecessary risk".

Mark Carney: "If there is a major shift as a outcome of the Brexit negotiations, that is disinflationary, or creates a very extreme trade-off, such as the one we saw post-referendum, then that could have consequences for monetary policy".

I'm a saver or a borrower - what does it mean for me?

"It is also unlikely it will provide much benefit to savers, or any lasting boost to the pound, with currency markets much more concerned about further clarity in the Brexit negotiations".

In reality, however, it's not so simple.

Possibly but the tone from the Bank of England governor suggests the next rate rise might not be until 2019 at the earliest.

In the shorter term, the Bank Rate implied by a so-called equilibrium real interest rate, or "r*", was likely to be somewhat lower, the BoE said but it did not give an estimate.

It also highlighted a slowdown in the United Kingdom housing market this year, which has been "concentrated in London", where mortgage completions are down 12% on 2016.

Rising trade tensions may, however, have an adverse impact on India's exports.

The interest rate rise will increase the cost of around 3.7 million residential mortgages that have variable or tracker rates.

The Bank is sticking to its guidance that interest rates will continue to head higher, but only at gradual pace and to a limited extent.

However, lower-than-expected inflation figures - unchanged at 2.4% in June - and weak wage growth had placed a question mark over the increase for some.

Unemployment, at 4.2% in the three months to May, is slightly higher than the 4.1% predicted by the Bank.

Economists have challenged the need for a rate hike now, given the Brexit risks and the potential for an escalating tariff conflict between Washington and Beijing to hit the global economy. Now is a good time to consider switching your banking products, as banks will be reviewing their rates.

The projected inflation rate is above its targeted comfort level of four per cent.

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