The Bank of England has announced a rise in the UK’s benchmark interest rate from 0.25% to 0.5%, the first increase in a decade.
The monetary policy committee decided by seven votes in favor and two against applying this increase, which reverses the 0.25% drop applied in August 2016 to resist the effects of the vote favorable to Brexit (British exit of the European Union, EU) in the referendum on June 23 of that year.
The Bank of England has estimated that the British economy, which has annualized growth of 1.5%, is sufficiently consolidated to resist this increase, aimed at containing the advance of inflation, which stood at 3% in September.
This is the first increase in interest rates in this country since July 2007, before the global credit crunch exploded, which plunged the UK into a recession.
To address this crisis, the bank lowered interest rates to 0.5% in March 2009, at which level they remained until the reduction to a new all-time low in August 2016.
The Bank of England has also decided to keep its quantitative expansion program intact – to stimulate the economy – in which it has invested a total of £ 445 billion to buy mostly public-private bonds.
In its report released today, the institution predicts that the British economy “will grow modestly in the next few years,” while consumption, an economic engine, “will remain fragile in the short term” until eventually, it will rise to wages.
The bank acknowledged that although the effects of Brexit were lower than expected, they “affected business investment” despite benefiting exports.
“Inflation is expected to fall next year, eventually reaching the 2% target,” the institution said, noting that any future interest rate increases will be “moderate and gradual.”
With unemployment at 4.3 percent – its lowest in 12 years – the UK economy held up better than expected to the effects of Brexit’s trading with Brussels and rose 0.4 percent in the third quarter, up from 0, 3% of the previous two quarters.
This generates an annualized growth of 1.5%, slightly below 2% estimated by the Government last March.
Nonetheless, low wages and rising household debt, which plagued domestic demand, have led many analysts to believe that today’s increase in interest rates will be timely rather than the beginning of a series of increases.