The Bank of England has announced a rise in interest rates from 0.5% to 0.75% following a unanimous decision by its Monetary Policy Committee.
The MPC, which is chaired by the governor of The Bank of England, Mark Carney, said that it would be raising interest rates because the economy has recovered from its slowdown during what was a cold, snow-blighted winter.
However, the announcement made this morning said that rate rises would be delivered at a “gradual rate and to a limited extent”.
The MPC said that recent data appeared to confirm that the dip in output in the first quarter was temporary, adding that momentum had been “recovering in the second quarter”.
It added: “The labour market has continued to tighten and unit labour cost growth has firmed. The MPC continues to judge that the UK economy currently has a very limited degree of slack. Unemployment is low and is projected to fall a little further.”
The Guardian newspaper reported that The Bank of England had also pointed out that prices were rising faster than its target (2%), so it was raising borrowing costs in a bid to squeeze inflation.
In November last year The Bank of England raised interest rates from 0.25% to 0.5% in their first increase in a decade in a measure aimed at tackling rising inflation.
“CPI inflation was 2.4% in June, pushed above the 2% target by external cost pressures resulting from the effects of sterling’s past depreciation and higher energy prices,” said the Bank revealed today (August 2).
“The contribution of external pressures is projected to ease over the forecast period while the contribution of domestic cost pressures is expected to rise.”
Commenting on today's interest rates rise announcement, Sue Robinson, director of the National Franchised Dealers Association (NFDA), speculated that the move was "unlikely to have any substantial impact on consumer confidence".
She added: “Interest rates remain exceptionally low and combined with historically low unemployment levels, consumers should not be significantly affected.
“The new car market is entering an interesting period with the introduction of WLTP in September meaning that consumers will be able to find very advantageous deals throughout August.
“Going forward, we are confident that the Government will continue to monitor closely the trends facing the UK economy and adopt any necessary measures to help consumers feel confident enough to make important purchases such as cars.”