Economy

ALEX BRUMMER: Interest rate rise proves Brexit doom-mongers got it wrong

ALEX BRUMMER: Interest rate rise proves Brexit doom-mongers got it wrong

The decision was unanimous, with the Bank of England's Monetary Policy Committee (MPC) members voting 9-0 to increase interest rates.

In the second bi-monthly monetary policy review announced in June, RBI had hiked the repo rate by 25 basis points to 6.25 per cent while maintaining a neutral stance.

The rate action was in line with a Reuters poll last week, which showed 37 of 63 economists expecting a rate increase.

Reverse repo rate, the rate at which the Reserve Bank borrows money from commercial banks within the country, was adjusted to 6.25 per cent. It is the second consecutive rate hike by the central bank.

Projection of GDP growth for the financial year 2018-2019 at 7.4 percent and 7.5 percent for Q1 FY20.

Sentance, a long-time critic of the Bank's ultra-low interest rate policy, adds businesses and consumers should be able to adapt to a well-communicated and gradual series of interest rate rises, after almost a decade of exceptionally low borrowing costs.

Kathleen Brooks said that one of the main things to look for will be the "mechanics of the rate decision", particularly with regard to how the vote goes in terms of who votes for what.

Canary Wharf is home to some of the UK's banks, which will be deciding what to do with the rates on the mortgage and savings products in the coming days.

Several private-sector economists have challenged the BoE's view that inflation pressures are building and say raising rates now only risks a U-turn by the central bank if Britain fails to get a Brexit deal.

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"This increase in demand has seen five-year fixed rates grow at a slower pace".

"There is only a very remote possibility that the BOE won't hike rates on Thursday", Kathleen Brooks, research director at Capital Index said in an email. "The BoE has signalled in the past that a conventional horizon is typically two years not three".

"However, with earnings growth remaining weak, the's increase has the potential to weaken consumer spending and dampen growth". The MPC also noted that United Kingdom growth over the forecast period would nudge slightly higher while inflation will remain above 2% before reaching target in 2020.

"No one thought that historically low interest rates would carry on for ever, but plenty of homeowners would probably admit they haven't planned ahead for rate rises".

Cheaper mortgage deals in recent years have also encouraged people to lock in promotional rates.

This is calculated using the March inflation rate, and changes in September.

Given that a rate hike is nearly a foregone conclusion, other parts of the MPC's decisions, and the minutes of the meeting are likely to provide more intrigue.

The Fed, which is expected to keep rates on hold at a two-day meeting that ends later on Wednesday, has already raised rates twice this year, while the Bank of England is poised to raise rates at a meeting on Thursday.


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