Bank of England hikes interest rates to 0.75%

A bigger motivation to raise them sooner rather than later is expectation of even stronger inflationary pressures in the near future when the govt starts procuring farmers’ crops at the higher prices it announced recently

Members of the nine-strong Monetary Policy Committee (MPC) voted to increase rates from 0.5% to 0.75% in only the second rise since the financial crisis struck, following last November's quarter point hike.

The Reserve Bank of India (RBI) hiked the repo rate (at which it lends to banks) by 0.25 per cent to 6.5 per cent and the reverse repo rate (at which it borrows from banks) to 6.25 per cent.

Repo rate has been raised by 25 basis points to 6.50 percent.

The rate hike is set to be one of the most divisive decisions in recent bank history, with opinions split on whether or not increasing borrowing costs will be a good idea going forward.

The Bank of England pushed interest rates above their financial crisis lows on Thursday, but signalled it was in no hurry to raise them further as Britain heads for Brexit next year with no clear plan for leaving the European Union.

The repo rates are also hiked to contain inflation in the country.

Why is the Bank raising rates?

So there is no direct link to the Bank rate.

Driving these decisions are signs that inflationary pressures that have mostly lain dormant for years are strengthening as the global economy enjoys a robust, if uneven spell of growth, led by a booming U.S. Figures released Thursday by the Organization for Economic Cooperation and Development showed global inflation hit a four-year high in June.

Lloyds said: 'The 0.25 per cent Bank of England base rate increase will form part of the ongoing rate reviews across our product ranges'. An annuity, which guarantees an income for life, rises in value alongside any interest rate rise.

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The next meeting of the Monetary Policy Committee is scheduled to be held between 3rd and 5th October, 2018.

RBI Governor Urjit Patel said the RBI survey of households reported an uptick of 20 basis points in inflation expectations.

Yorkshire Building Society - A spokeswoman for the Yorkshire said: 'We will take time to consider how to adjust our variable rate mortgage and saving accounts.

"However, with earnings growth remaining weak, the's increase has the potential to weaken consumer spending and dampen growth".

"After five years of pay growing at a measly average of 1.75%, pay rises are now running at an average of 2.75% and are expected to go higher", he says.

GETTY RATE RISE: How will the BoE interest rate rise affect mortgages and savings?

But it will still leave savers who have suffered a decade of miserly interest payments with a poor return on cash left in the bank. "Given this, we have to ensure that we run a tight ship on the risks that we control to maximize the chances of ensuring macro-economic stability and continuing with the growth profile of 7-7.5 percent".

The government has mandated the Reserve Bank to keep inflation at 4% (+/- 2%). With the new hike, home loans and EMIs are expected to become costlier.

EUR/GBP at 0.90 gives a GBP/EUR exchange rate of 1.11.

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