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Bank of England hints at earlier and faster rate rises | |
(35 minutes later) | |
The Bank of England has indicated that the pace of interest rate increases could accelerate if the economy remains on its current track. | The Bank of England has indicated that the pace of interest rate increases could accelerate if the economy remains on its current track. |
Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting. | Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting. |
However, they said rates would need to rise "earlier" and by a "somewhat greater extent" than they thought at their last review in November. | However, they said rates would need to rise "earlier" and by a "somewhat greater extent" than they thought at their last review in November. |
Economists think the next rate rise could come as soon as May. | Economists think the next rate rise could come as soon as May. |
The value of the pound initially jumped almost 1% against the dollar, but fell back to about 0.5%. | |
Higher interest rates have an important effect on households and the economy. | Higher interest rates have an important effect on households and the economy. |
Around 8.1 million UK households have a mortgage, and of those almost half are on either a standard variable rate or a tracker rate. | Around 8.1 million UK households have a mortgage, and of those almost half are on either a standard variable rate or a tracker rate. |
Interest rates on those types of mortgages would be likely to match any increase in official rates made by the Bank of England. | Interest rates on those types of mortgages would be likely to match any increase in official rates made by the Bank of England. |
But for savers a move higher by the Bank of England could be a bonus, as High Street banks generally have to raise their rates of interest. | But for savers a move higher by the Bank of England could be a bonus, as High Street banks generally have to raise their rates of interest. |
In November, the Bank raised the cost of borrowing for the first time in more than 10 years - from 0.25% to 0.5%. | In November, the Bank raised the cost of borrowing for the first time in more than 10 years - from 0.25% to 0.5%. |
Its forecasts at the time indicated there could be two more increases of 0.25% over three years. | Its forecasts at the time indicated there could be two more increases of 0.25% over three years. |
But it now appears there could be a third increase and those rises could be sooner than expected. | But it now appears there could be a third increase and those rises could be sooner than expected. |
"The Committee judges that… monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report," minutes from the Monetary Policy Committee's (MPC) meeting said. | "The Committee judges that… monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report," minutes from the Monetary Policy Committee's (MPC) meeting said. |
The Bank noted that the global economy was expanding at the fastest pace in seven years and that the UK was benefiting from that growth. | The Bank noted that the global economy was expanding at the fastest pace in seven years and that the UK was benefiting from that growth. |
It also thinks that UK wage growth will start to pick-up, giving the economy a further boost. | It also thinks that UK wage growth will start to pick-up, giving the economy a further boost. |
As a result, the Bank has raised its growth forecast for the UK economy to 1.7% this year, from its previous forecast of 1.5% made in November. | As a result, the Bank has raised its growth forecast for the UK economy to 1.7% this year, from its previous forecast of 1.5% made in November. |
But it says its forecasts are based on a "smooth" adjustment to Britain's departure from the European Union. | But it says its forecasts are based on a "smooth" adjustment to Britain's departure from the European Union. |
Analysis: Kamal Ahmed, BBC economics editor | |
Today the Bank signalled that the old conventions of increasing interest rates when inflation is above target would return. | |
The cost of mortgages is likely to rise and savers at last will see returns improve. | |
The economy is stronger, the Bank has made clear today. | |
But not everything in the garden is rosy. | |
It points out that the UK economic engine still "remains restrained by Brexit-related uncertainty" which is "the most significant influence on the economic outlook". | |
We are driving along with the hand brake half on. | |
Growth is modest by historic standards and the UK has gone from the fastest growing economy among the G7 largest global economies to the slowest. | |
Read Kamal's blog in full | |
Perkier economy | |
Official figures last month showed that the economy grew 0.5% in the last three months of 2017, which was faster than economists had been expecting. | |
Unemployment remains low at 4.3% and inflation edged lower in December to 3%. | |
The Bank also released the letter sent by governor Mark Carney to the Chancellor of the Exchequer, Philip Hammond, to explain why inflation had breached the target rate of 3% in November. | |
In the letter, Mr Carney said that higher inflation was "almost entirely" due to the effects of a rise in the prices of imports, caused by the fall in the pound's value after Britain voted to leave the European Union. | |
The chancellor replied by stressing the importance of boosting UK productivity and the government's efforts to make that happen. |