Bank of England raise interest rates

Bank of England raise interest rates

The Bank of England raises interest rates to their highest level for almost a decade

While many analysts expect another split decision on Thursday, solid employment growth, steady pay growth and a rebound in consumer spending are expected to justify an increase.

"Since the RBI is committed to bringing down inflation, they don't have a choice but to raise rates", said Rupa Rege Nitsure, group chief economist at L&T Finance Holdings.

The Bank of England raised its main interest rate on Thursday for only the second time since the 2008 financial crisis as it weighed conflicting signs about the economy and growing concerns about Brexit. He added that this would now obviate the chances of another hike in October.

The hike in repo rate, the second time in two months, will have a direct bearing on home and auto loans.

The Bank of England's Monetary Policy Committee (MPC) has voted unanimously to raise the Bank Rate from 0.5% to 0.75%. The marginal standing facility (MSF) rate and the bank rate were also raised to 6.75 per cent.

Samuel Tombs, chief United Kingdom economist at Pantheon Macroeconomics, said: "The MPC's economic forecasts haven't changed much since May and its key guidance phrases are unchanged, but the unanimous vote suggests that the committee's resolve to implement a tightening cycle has increased".

VK Sharma, Head Private Client Group & Capital Market Strategy, HDFC Securities: By hiking rates by another 0.25 percentage points the central bank is now fully ahead of the curve.

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Wednesday's decision is "likely to be a close call, with odds of a hike marginally higher than a pause", said DBS economist Radhika Rao.

It also stated that any future increases in the Bank Rate are likely to be at a gradual pace and to a limited extent.

It will come as a blow to millions of mortgage borrowers on variable rate deals, with a quarter point rise adding around £16 a month and £190 a year to the average mortgage.

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. The number of people in jobs is at a record high.

"The proportion of respondents viewing the European Union and Brexit as one of the most important concerns facing the United Kingdom shot up from 46% to 58% in July, the highest reading in the history of the index which dates back to 1974".

"The banks have already started raising rates".

"It has always been the MPC's explicit assumption that "households and companies (will) base their decisions on the expectation of a smooth adjustment to new trading arrangements", he said.

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In the third bi-monthly monetary policy statement for 2018-19, RBI said various indicators suggest that economic activity has continued to be strong.

And at 0.75%, rates would still be very low by historical standards, given that the base rate stood at more than 5% when the credit crisis and subsequent global financial crisis hit.

However, the monetary policy committee maintained its stance at neutral.

"This is also known as R*". While those with savings can expect only a £2.50 on £1,000 of savings.

Edelweiss Securities said in its research report that they do not think the RBI will make any changes in interest rates this time.

Stay tuned to Business Insider for updates after the decision is announced at 12.00 p.m. BST (7.00 a.m. ET).

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