Today has seen The Bank of England increase interest rates for the first time in more than ten years, with a 0.25% increase from 0.25% to 0.5%. In a bid to control inflation, and keep it on target for the 2% set and required by The Bank of England, Director Mark Carney has described the move as a ‘straightforward decision’.
According to a report from the Office for National Statistics (ONS), a lot has changed in the last decade; the last time interest rates rose was marked by the resignation of Tony Blair and the release of the first ever Apple iPhone. The ONS highlights that interest rates have stayed so low for so long because “After rising to 5.75% in July 2007, the Bank of England base rate was subsequently cut nine times in the next two years as the financial crisis took effect. It reached a record low of 0.5% in March 2009 and remained at that level, partly because of the long-lasting impact of the crisis, before dropping again to 0.25% in August 2016. The economy took much longer to recover from this recession compared with previous ones, which kept interest rates low”
In his public statement on yesterday’s increase, Carney comments on the effect of Brexit, saying “The MPC [Monetary Policy Committee] has repeatedly emphasised that monetary policy cannot prevent either the necessary real adjustments to new trading arrangements, or the weaker real income growth likely to accompany that adjustment. We can however support the economy during the adjustment process.”
The Bank of England predicts that despite leveraging interest rates to control inflation, inflation will till peak ahead of the 2% target at 3.2% this month.