Interest rates rise for only the second time in a decade

The Bank of England’s Monetary Policy Committee has decided to increase interest rates by quarter of a percent to 0.75%, the highest level since March 2009. This is only the second rate rise in ten years.

The Committee had been expected to raise rates back in May but given the weaker performance of the economy, partly due to the severe weather conditions, they decided against the move at that time. It appears the Bank is now more confident that any weakness was temporary and that economic growth will recover.

The decision to raise rates will have a direct impact for many mortgage holders, increasing the interest costs of more than three and a half million mortgages on variable or tracker rates.

Despite the recent series of closures by big high street retailers, the Bank believes that growth is being supported by household spending.

In its Quarterly Inflation Report the Bank said that whilst retail closures had increased and footfall fallen, this was more a reflection of consumers moving to online stores.

The Bank anticipates continuing modest growth in the economy of 1.4% this year and a further increase next year, with inflation forecast to fall back to 2% by 2020. They also highlighted a slowdown in the UK housing market, particularly in London where mortgage completions had reduced by 12% on 2016.

Commenting on the rise, Allan Gardner, Financial Services Director, Aberdein Considine said: “The rate rise will have an impact for many mortgage holders who will need to ensure they manage any increase in costs as part of their normal budgeting.

This increase is a bit of a milestone and depending on how long they have left on their current mortgage deal, it’s probably useful to speak with your lender or mortgage broker to explore your options.”