The Bank of England raised its main interest rate for the first time since 2007, before the global financial crisis, it announced on Thursday as it tackles Brexit-fuelled inflation.
Policymakers voted 7-2 to tighten borrowing costs to 0.50 percent from a BoE record low of 0.25 percent as a weak pound caused by Brexit uncertainty has hiked the cost of imports into Britain and in turn sent the country’s inflation rising far above the central bank’s target.
“There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” said minutes of a regular policy meeting that ended Wednesday.
The pound tumbled in an immediate reaction to the rate move, while the London stock market extended earlier gains as a weaker sterling helped the earnings prospects of exporters.
“The Committee will monitor closely... the impact of today’s increase in Bank Rate, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the two percent target,” the minutes added.
It is the first BoE hike since before the financial crisis, when the rate were ratcheted up as high as 5.75 percent in July 2007.
The bank subsequently cut borrowing costs to ultra-low levels during the crisis and beyond.
The quarter-point increase reverses an emergency rate cut implemented in August 2016 on fears over the economic impact of the shock Brexit referendum which has not materialized.
Britain’s 12-month inflation rate accelerated in September to 3.0 percent -- the highest level for more than five years, recent official data showed.
Around eight million Britons have never seen an interest rates rise in their adult lives, experts say, with rates languishing at rock-bottom lows after the country fell into a deep recession.
Retail banks tend to pass on any change in the BoE rate to its customers. The increase to 0.50 percent is now set to raise repayments for borrowers and therefore stretch household budgets already under pressure from weak wage growth and soaring consumer prices in Britain.
However, it should boost savers via higher rates of return.
Britain is on course to depart from the European Union in March 2019 -- but London remains locked in tough exit negotiations with Brussels.