U.K. hikes interest rates for first time in 10 years

What the heck is a 'negative' interest rate?
What the heck is a ‘negative’ interest rate?

U.K. interest rates are doing something they haven’t done in a decade: Going up.

The Bank of England hiked its key rate on Thursday from a record low of 0.25% to 0.5%, a shift that economists widely expected.

It’s the first time the central bank has increased the cost of borrowing since 2007, but many analysts fear the move may yet be premature.

Britain’s economy has struggled to move out of first gear following the Brexit referendum in June 2016. Unemployment has continued to fall, but a sharp drop in the value of the pound has hurt consumers by making imported goods more expensive.

Wages have also been squeezed and the housing market has slowed.

Higher interest rates will benefit savers, who have for years seen paltry returns on their deposits. But it will also make borrowing more expensive for consumers who are already facing tighter household budgets.

The worry is that hiking rates too early will cause economic growth to slow further.

The rate hike is a sign that rising prices outweigh other concerns inside the Bank of England. At 3%, inflation is firmly above the central bank’s official 2% target, and a rate hike would help cool things down.

U.K. interest rates remain at very low levels despite the hike. As recently as 2007, the central bank’s key rate had been set at 5.75%.

Related: Why business is beginning to panic about Brexit

This is the first rate hike from Governor Mark Carney. He joined the Bank of England in 2013 after a stint leading Canada’s central bank.

mark carney
Bank of England governor Mark Carney has never previously raised rates in the U.K.

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Economic news – CNNMoney.com

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