Finance figures react to Bank of England's interest rate decision
PUBLISHED: 12:34 02 November 2017 | UPDATED: 15:37 02 November 2017
The business and finance communities are reacting cautiously to the Bank of England's decision to raise interest rates to 0.5% - the first positive base rate movement in more than a decade.
Interest rates have been at historic lows since 2009, when they were slashed from more than 5% to 0.5% after the financial crisis started to bite.
Last August saw the Bank’s Monetary Policy Committee drop rates again to 0.25% in reaction to the slump in sterling after the Brexit vote.
The decision to reverse the decreases has prompted mixed reactions from economists and business figures.
Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), said: “The decision to raise interest rates comes as no surprise, given the recent signals from the Bank and several Monetary Policy Committee members signalling their intention to vote for a change of course.
“While it’s the first rate rise in over a decade, it is only taking the rate back to the level seen in August 2016 and at 0.5% it remains near rock bottom.
“Businesses will be watching the reaction of consumers closely and what’s important is the pace of any future rises. As rates creep up, it’ll be important to keep an eye on the impact for those at the lower end of the income scale.”
Nick Leeming, chairman at Jackson-Stops, said the moderate rise was unlikely to disturb the housing market.
“Good things don’t usually last forever and the end of this golden period of great mortgage deals won’t be a surprise to the vast majority of prospective and current homeowners. The market remained fairly stable throughout the general election and the EU referendum so it would be surprising to see activity levels or house prices fall as a result of such a modest change to interest rates,” he said.
Charlotte Nelson, finance expert at Norwich-based Moneyfacts, said the decision may see some savers “jump for joy” after a decade of rock-bottom returns.
“However, they may want to hold back on the celebration, since the link between base rate and savings rates seems to be severed,” she said.
“Given it’s been such a long time since the market has seen a base rate rise, it is very difficult to tell whether providers will increase their rates straight away or decide to wait and see what the rest of the market does before making their move.
“Anyone looking for a savings deal now will need to keep on their toes and check the Best Buys to ensure they are still getting the best rate.”
In terms of mortgages, where competition between providers had been keeping rates low, Ms Nelson said speculation of the rate rise had caused rates to slowly creep up in the past two months. “Today’s announcement may see an end to the lowest of deals,” she said.
“With fixed rate mortgages still low, borrowers will be significantly better off switching deals now before it may be too late.”