Mark Carney: Brexit pressures prompted first interest rate hike for a decade
Mark Carney has said the fall in the pound after the EU referendum was a key factor in the decision to raise interest rates for the first time in over ten years.
The Bank of England Governor cited the Brexit effect for inflationary pressures that led to today’s rise in the official base rate.
The Monetary Policy Committee – the panel which sets interest rates – took the decision to increase the rate from 0.25% to 0.5%, the first rise since before the financial crisis in 2007.
Speculation about a potential rise intensified after inflation hit a 5-year high of 3% last month, driven by the fall in sterling increasing the price of imports.
The increase will seek to prevent further price rises in line with Mr Carney’s inflation target of around 2%.
Speaking at a press conference, Mr Carney said the hike was necessary “to achieve a sustainable return of inflation to target.
“That is we must aim to bring inflation back to target and keep it there once the effects of temporary factors, currently predominantly those caused by the referendum-related fall in sterling, dissipate.”
He added: “With unemployment at a 42-year-low, inflation running above target and growth just above its new lower speed limit, the time has come to ease our foot a little off the accelerator.”
The announcement triggered a further fall in the pound to £1.124 against the Euro.
The move sparked fierce criticism from unions, however, who have warned that people will be hit with higher debt repayments and mortgage costs.
UNISON general secretary Dave Prentis said: "This rate rise adds insult to injury for public service employees suffering from years of wage freezes and limits on their pay.
"Spiralling debts and increased mortgage payments are the last thing hardworking public servants and their families need. They all deserve a decent pay rise that more than matches the rising cost of living.
"The Chancellor should show he understands the financial pressures they're under and find the cash in the Budget to fund their long overdue pay rise."
TUC General Secretary Frances O’Grady said the decision would be “a hammer blow for those in problem debt, whose repayments will now rise".
“The Bank of England has made the wrong call,” she added.