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First UK Interest Rate rise in 10 years


First UK interest rate rise in 10 years

The official bank rate has been lifted from 0.25% to 0.5%, the first increase since July 2007.

The move reverses the cut in August of last year - made in the wake of the vote to leave the European Union.

Almost four million households face higher mortgage interest payments after the rise, but it should give savers a modest lift in their returns.

As well as many of the country's 45 million savers, anyone considering buying an annuity for their pension will also see better deals.

The main losers will be households with a variable rate mortgage.

Of the 8.1 million households with a mortgage, 3.7 million, or 46%, are on either a standard variable rate or a tracker rate.

According to UK Finance, the average outstanding balance is £89,000 which would see payments increase by between £11 and £12 a month.

The Bank estimates that almost two million mortgage holders have not experienced an interest rate rise since taking out a mortgage.

Brexit impact

The nine-strong panel which sets interest rates, called the Monetary Policy Committee (MPC), justified the rate increase by saying that falling unemployment means there is "limited" slack in the economy.

Seven out of the nine members voted in favour of higher rates.

They believe that growth cannot accelerate much more without causing prices to rise more quickly.

However, the MPC repeated previous guidance that future increases in rates would be at "a gradual pace and to a limited extent".

The financial markets are indicating two more interest rate increases over the next three years, taking the official rate to 1%.

The MPC also said that the decision to leave the European Union is having a "noticeable impact" on the economic outlook.

It said there were "Brexit-related constraints" on investment and labour supply, which were holding back the potential growth rate of the UK economy.

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