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Bank Raises Interest Rates
In what was a somewhat unexpected move, the Bank of England’s
monetary policy committee (MPC) voted to increase the base rate
of interest by a quarter percent, bringing it to 4.75%. The decision
was taken by the committee led by the Bank’s governor Mervyn
King, which is currently only made up of seven members, as new
appointments are yet to join to replace the two members lost a
couple of months ago.
Most economists believed that the MPC would hold rates unchanged
at this stage, keeping with their ‘wait and see’ approach,
however there were some who felt that due to inflation running
above target for the second consecutive month, this rise was on
the cards.
This is the third August in a row in which the MPC has altered
interest rates, this time last year saw a cut equal to the rise
of this year, something that Mr King was against at the time,
and it seems that now he has been able to influence a change to
put right that move. This is of course speculation, as the exact
details of the meeting and who voted which way will not be known
publicly until the minutes of the meeting are released, which
won’t happen until the middle of the month.
So what does this rise mean for the average person? Well for
those with variable rate mortgages it will likely result in an
increase in the monthly repayments, this wont happen immediately
however, as any rate change often takes a while to filter through.
The amount that the repayments rise will of course depend on the
outstanding mortgage, based on the average mortgage, the increase
will be around eighty pounds a month.
For those without a mortgage and with savings, the rise will
actually see them better off, as the rate increase should filter
through into the rate that their savings are earning them, and
therefore will make their savings grow faster.
This increase in rates will have an effect on the wider economy,
the MPC decided on this course of action in order to keep the
inflation of the consumer price index (CPI) in check, as it had
been running above desired levels. Normally a rate rise will calm
consumer spending, and have a damping effect on the housing market,
which together will reduce the inflation of the CPI. Given the
current economic situation, it is highly unlikely that there will
be any more rises in the base rate for the foreseeable future,
so for the time to come expect stability in rates.
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