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Interest rates held at 0.5% but borrowers braced for August hike

Paloma Kubiak
Written By:
Paloma Kubiak

The Monetary Policy Committee (MPC) voted by a majority of 6 to 3 to maintain the Bank Rate at 0.5%, in line with expectations.

While the decision comes as a blow to savers looking for better rates on their money, for homeowners, they can breathe another sigh of relief that mortgage payments won’t be on the rise just yet.

The inflation rate for May was unchanged at 2.4% and wage growth was also pegged back, so given the recent spate of weak economic data, it came as no surprise that today’s Base Rate would be held.

Just yesterday, the markets were pricing in a 3% chance of a rate rise.

However, the MPC looks to be standing firm on its desire to hike rates in August.

Ed Monk, associate director for personal investing at Fidelity International, said: “A majority of economists expect a rise in August and there was nothing in the Bank’s comment today to dissuade them. A tightening of the MPC vote to 6/3 indicates the hawkish direction.

“The Bank said that it expects the dip in GDP growth to be temporary, meaning its central case of gradual tightening from here remains in place.

“While an August rate hike may provide savers a reason to cheer, they shouldn’t get too excited as any further rate hikes from the Bank of England are likely to be gradual and to a limited extent.”

Sterling jumped on the news, gaining almost a cent against the dollar as traders factored in a bigger chance of a move in August.

However, Ben Brettell, senior economist at Hargreaves Lansdown, said: “On balance I still think we might not see a rate rise for the rest of the year. Policymakers will at the very least want confirmation that the weak first-quarter growth figure was just a blip before raising borrowing costs.”