Bank raises interest rate to 4%

Link: Interest rates to rise

This latest rise follows a similar increase in November last year.

Homeowners will be lamenting the new interest rate rise, which will mean higher monthly mortgage payments.

Roger Bootle, economic Adviser at Deloitte, said the decision to raise the rate was made on the back of a run of ‘strong data in the last few weeks’.

‘GDP growth came in at a quarterly rate of 0.9% in the fourth quarter of last year, and the 0.9% monthly increase in December’s retail sales suggested that most of this was due to strong consumer spending, while the rise in the GfK measure of consumer confidence to a 14-month high in January implied consumer spending is set to remain strong in the months ahead,’ Bootle added.

Many economists believe the rate could rise as high as 5% to cool consumer spending and prevent inflation exceeding medium term targets.

But Bootle said: ‘I think that there is more danger that inflation will undershoot the target. CPI inflation in December was just 1.3% – well below the 2% target, and I think that inflation will end this year at about the same rate – and may even dip below the 1% lower boundary in the meantime.

‘But the MPC is starting to interpret its inflation remit more liberally. Its policies are still directed towards control of inflation over the medium term, but I suspect that for the immediate future it is probably more concerned about the appetite of consumers to spend and borrow than the inflation outlook. And it is this that will dictate how far interest rates will rise this year.’

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