Interest rates held at 0.25% but calls for hike mounting

15 June 2017

The Monetary Policy Committee (MPC) has once again voted to keep the Bank of England interest rate at 0.25%.  

The interest rate was last moved in August 2016 when it was cut from 0.5%, a level it had remained at for seven years.

However, with inflation reaching a four-year high of 2.9% in May, three of the eight members of the MPC voted in favour of a rise.

Nonetheless, Hargreaves Lansdown’s senior economist, Ben Brettell had not been expecting such a hawkish result. He says: “Set against a backdrop of disappointing retail sales, slowing growth, shrinking real wages and heightened political uncertainty, it was somewhat surprising that three MPC members voted for higher rates at this week’s policy meeting.

“Economists had expected a 7-1 split, with the soon-to-depart Kristin Forbes the lone voice calling for higher rates. In fact she was joined by Ian McCafferty and Michael Saunders in believing intensifying inflationary pressures justify an immediate 25 basis point increase.”

As a result of the vote, it appears that members of the MPC are becoming less willing to overlook inflation - Hargreaves Lansdown predicts we could now see rates rise by the end of the summer.

Calum Bennie, savings expert at Scottish Friendly says that keeping rates on hold will only increase pressure on household finances. He adds: “The usual prescription to deal with a bad dose of inflation, even where it has been self-induced by overindulging in quantitative easing, is to raise interest rates.

“However the decision to leave interest rates unchanged for fear of upsetting the struggling UK economy means that for the time being we have to resign ourselves to higher prices and wages that don’t keep pace.

“The longer this gap is left to widen the worse off people on lower incomes are likely to become as their disposable income is squeezed further and their reliance on credit grows ever stronger.”

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