The Bank of England has increased interest rates to their highest level for nearly 10 years and said further “gradual” rises are on the cards.
Members of the nine-strong Monetary Policy Committee (MPC) voted unanimously to raise the base rate from 0.5% to 0.75% after the economy bounced back as expected from a snow-hit start to the year.
The move sees rates rise above the emergency low of 0.5% for the first time since March 2009 and marks only the second hike since the financial crisis, after last November’s quarter-point increase.
Mark Carney, Governor of the Bank of England, said rates would need to rise further to bring inflation back to the 2% target over the next few years, but stressed hikes would be “limited” and “gradual”.
“Policy needs to walk – not run,” he said.
Millions of borrowers on variable rate mortgages will be affected by the latest hike, with a quarter-point rise adding around £16 a month or £190 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.
The Bank had backed away from a rate rise earlier this year after growth slowed down sharply to 0.2% in the first quarter, but said the UK economy had recovered as predicted.
It forecasts that growth rebounded to 0.4% in the second quarter, with data pointing to a similar rate of growth between July and September.