Interest rates held at record low of 0.1 percent in another blow for Britons

Bank of England: Victoria Scholar discusses interest rates

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Interest rates have remained the same at 0.1 percent, according to the Bank of England’s latest announcement. The decision follows a meeting convened with the Monetary Policy Committee – the body responsible for setting the rates on a semi-regular basis. The Bank of England said the Monetary Policy Committee voted by a majority of 7-2 to keep interest rates at 0.1 percent.

The two policymakers who voted to raise interest rates to 0.25 percent were deputy governor Sir Dave Ramsden, and external member Michael Saunders.

Experts and financial markets recently predicted an interest rate rise, after numerous decisions by the MPC to keep the base rate at 0.1 percent – but this did not come to fruition.

Speculation grew in recent weeks that the Bank rate would increase from 0.1 percent to 0.25 percent in response to the idea of rising inflation.

The Governor of the Bank of England, Andrew Bailey, recently stated the central bank “will have to act and must do so if we see a risk, particularly to medium-term inflation”.

It led to increased ideas the bank could increase its interest rates.

The base rate has remained static since March 2020, as the central bank took the decision to cut it to an historic low.

The decision was made as a result of the outbreak of COVID-19 in the UK, which deeply impacted the economy.

But as restrictions were eased, calls to increase the interest rate became deafening, especially as inflation has been increasing.

Inflation is the general increase in prices of goods and services within an economy, and soaring energy costs are expected to drive the percentage above four percent this winter.

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Alastair Douglas, CEO at TotallyMoney: “It’s a delay of the inevitable – we know a rate hike is just around the corner.

“And, while today’s decision gives people a bit more time to prepare, when it comes it may be the start in a series of rises that will make the cost of borrowing more expensive than expected and push those who are just about managing to, quite simply, not managing.

“The increase to National Insurance contributions is already an obstacle to the progress of younger workers and lower earners, energy prices are rising, and inflation is causing food costs to soar.

“On their own, each of these may not seem like a critical change.

“Together, they are an additional strain on finances that millions are not able to cope with – over half are finding it hard to keep up with their bills and credit commitments, and 42 percent could not pay an unexpected £300 bill.

“With so much to contend with, we need to help people to understand their financial position, take the right steps to manage that and move on to a better financial future.”

Annabelle Williams, personal finance specialist at Nutmeg, also commented on the matter.

She said: “Many economists expected the Bank of England to raise interest rates incrementally to redirect the economy towards ‘normal’ fiscal policy.  

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“The British economy has been more resilient than many expected throughout the pandemic so far, but with cost of living rising and winter fast approaching the Bank of England is cautious not to make changes too quickly that might unbalance the economy.  

“However, keeping rates at very low levels for too long can distort the economy and have knock-on impacts on the population – for example, by pushing up house prices.

“The pandemic has fundamentally altered how people think about money in lots of little ways – for example, Nutmeg research found that people have been saving more for the under-18s in their lives by contributing to Junior ISAS.”

And Guy Foster, chief strategist at Brewin Dolphin, added: “The MPC delayed what now seems to be inevitable. 

“When they do raise rates the MPC will be sending a signal to the market: It was prepared to act against inflationary pressures. 

“Some will suggest that it’s excessive given the well-known pressures from tax and inflation that are building on UK households, but hiking rates now is much less risky than you’d think.”

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