Committee members break consensus voting for immediate 0.75% rise in interest rates

Written by Adam Cadle

The Bank of England left interest rates unchanged today at 0.5%, but two committee members broke consensus and voted for an immediate rise to 0.75%.

Both Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future. Sterling jumped on the news, hitting a seven-week high against the dollar.

Hargreaves Lansdown senior economist Ben Brettell said: “The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of 2%, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present.

“It now looks increasingly likely we’ll see a rise to 0.75% at the Bank’s May meeting. Beyond that the outlook is less clear. As ever the Bank is at pains to point out that the pace of interest rate rises will be gradual. Much will depend on how Brexit negotiations progress, but it’s possible that further wage rises could force policymakers into a further rise this year.”

Trussle CEO Ishaan Malhi added: “Today's focus on interest rates really only highlights half the story when it comes to mortgages. As lenders change the rates of their deals, many will change the attached fees and incentives too. It's important to take the total true cost into account, since a higher-rate deal can actually be cheaper overall than a low-rate deal. For example, choosing the lowest rate mortgage deal with one of the Big Six lenders would actually cost the average homeowner £400 more than if they were to choose the lender's lowest true cost deal.

"Comparing deals this way isn't as straightforward as it should be, so it's worth seeking advice from a broker to make sure you're making the right choice."

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