Boost for savers as interest rates rise to nine-year high
THE Bank of England has raised interest rates to their highest level in almost a decade after the summer heatwave helped the economy bounce back from a snow-hit start to the year.
Members of the nine-strong Monetary Policy Committee (MPC) voted unanimously to raise the base level from 0.5 per cent to 0.75 per cent and sees rates rise
above the emergency low of 0.5 per cent for the first time since March 2009.The increase is only the second hike since the financial crisis, after last November's quarter-point increase.
At the Bank's rate meeting it was indicated further rises could be on the horizon as policymakers look to bring inflation back to target, although they continued to stress that these would be "gradual" and "limited".
Millions of borrowers on variable rate mortgages will be affected by the decision, with a quarter-point rise adding around £16 a month or £192 a year to the average mortgage.
But it will offer some relief to savers, who have seen their nest eggs decimated by above-target inflation and negligible returns.
In the minutes of the MPC's meeting, the Bank said: "Recent data appeared to confirm that the dip in UK output in the first quarter had been temporary, with momentum recovering in the second quarter."
The interest rates hike comes as the squeeze on household finances has eased, with wage growth just outstripping inflation, which is helping growth to pick up.
The Bank said retail sales had surged by 2.1 per cent in the second quarter, boosted by the recent sunny weather.
"Weather effects - both the snow-related disruption in February and March and the unseasonably warm weather and long sunshine hours in May and June - seemed to have accounted for around half of the second quarter rise," it added.
Ulster Bank chief economist, Richard Ramsey said although the impact of the rates hike is not as pronounced in Northern Ireland as it would appear.
"Most mortgage holders now have fixed rates deals rather than variable, so many existing mortgage holders won't therefore be directly impacted. And the reality is that today most under-40s in Northern Ireland don't actually even have a mortgage, as they are renters rather than homeowners. Therefore the cost of renting is of more relevance to them than the cost of borrowing," he said.
Danske Bank chief economist, Conor Lambe believes monetary policy in the UK remains relatively supportive for most consumers and businesses.
"Interest rates are unlikely to return to the levels they were at before the financial crisis anytime soon," he said
Retail NI chief executive Glyn Roberts described the rates hike as "premature"
This is not a welcome development given how weak consumer spending is at the present time. Retail footfall has decreased and a very significant number of large retailers have folded-this increase will certainly not be welcomed by the retail sector," he added.