RBI hikes lending rate, loans likely to become dearer

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The Bank of England has opted to push interest rates above their financial crisis lows.

GETTY RATE RISE: How will the BoE interest rate rise affect mortgages and savings?

"Against the above backdrop, the MPC made a decision to increase the policy repo rate by 25 basis points".

Interest rates were cut to 0.5% in March 2009 when the markets were in the grip of the banking crisis and remained at that level until August 2016 when they were cut to 0.25% in the aftermath of the European Union referendum.

Dapo asks: Are we likely to have another interest rate rise before the end of 2018?

Here's Brooks one last time: "Earlier this year the BOE Governor Mark Carney said that the Bank would give its view on the latest equilibrium, or neutral, interest rate for the United Kingdom economy".

He said: "We believe that the odds still favour the Bank of England lifting interest rate from 0.50% to 0.75% on Thursday after the August MPC meeting - most likely following a split vote". "These numbers clearly indicate that the markets are now recovering from the shocks of structural changes and policy reforms".

5 out of 6 MPC members voted for a hike.

I'm a saver or a borrower - what does it mean for me?

The BoE has struggled before to follow through on its signals about when it might raise rates.

"This is hopefully the first step on the road to a more normal level of interest rates - following the lead from the US Federal Reserve".

In reality, however, it's not so simple.

The minutes explained that Brexit is still one of the most important considerations for the bank's rate-setting committee.

The hike will make United Kingdom mortgages and loans more expensive, but should boost returns on cash tucked away in domestic savings accounts.

Tory MP Robert Jenrick, Exchequer Secretary to the Treasury, said: "Our balanced approach has helped keep mortgage rates low, while also reducing the national debt and helping with the cost of living".

Many home owners are also locked into fixed-rate mortgages, and so will not feel an immediate impact from a base rate rise.

It said its forecasts were based on bets by investors who expect another rate hike only in late 2019 or early 2020, with Bank Rate creeping up to 1.1 percent in late 2020.

The central bank also said indicators suggested that economic activity continued to be strong.

Wage growth - the main domestic driver of inflation - has been slow to pick up, too.

Unemployment, at 4.2% in the three months to May, is slightly higher than the 4.1% predicted by the Bank. While those with savings can expect only a £2.50 on £1,000 of savings. Now is a good time to consider switching your banking products, as banks will be reviewing their rates.

He said "limited" and "gradual" increases were required to bring inflation down to its 2 per cent target now that the United Kingdom economic growth appeared to be picking up again.

Of course, these are not normal times.

With the policy rate increase expected to get transmitted with a lag, customers will have to brace themselves for much higher rates in the future.

The monetary policy committee of a country uses the reverse repo rate as a tool to control the money supply in the country.

The majority of mortgage-holders, who have fixed rates, will not see a difference.

No easy access savings accounts pay more than the rate of inflation, and even those that top the best buy tables remain some way off.