The Bank of England’s Monetary Policy Committee voted unanimously to raise interest rates by a quarter of a percentage point to 0.75%.
The widely expected increase took the UK base rate to its highest level for almost a decade. Interest rates were slashed to 0.5% by the Bank in the 2008/9 global financial crisis.
Some economists and business groups criticised the Bank for Thursday’s increase amid continuing Brexit uncertainty and weak economic growth in the UK. But the Bank said recent data indicated that the first-quarter slowdown in UK growth was temporary, and slightly raised its GDP forecasts.
It now expects the UK economy to grow 1.5% this year, compared with 1.4% forecast previously, and then by 1.8% in 2019.
However, the pound dipped below $1.30 on Friday as Bank governor Mark Carney warned of an “uncomfortably high” risk of a no-deal Brexit.
Meanwhile, purchasing managers’ surveys showed business activity slowing in the UK services and manufacturing sectors in July.
The IHS Markit services purchasing managers’ index (PMI) fell to 53.5, from 55.1 in June, while the manufacturing PMI declined to 54 from 54.3. While PMI readings above 50 indicate growth, both indexes were at their lowest in three months.
Respondents to IHS Markit’s services survey indicated that the heatwave had been a mixed blessing, boosting some businesses such as tourism but disrupting activity elsewhere.
For manufacturing, Markit’s Rob Dawson said its survey showed the sector began the third quarter on a “softer footing”.
“The upturn in the sector has eased noticeably since the back end of 2017, meaning that manufacturing has failed to provide any meaningful boost to headline [national] growth through the year so far,” he said.
However, the construction PMI climbed to 55.8, its highest level for more than a year, as the sector continued its rebound from a low earlier this year.
The annual rate of house price growth recovered to 2.5% last month, according to Nationwide, after hitting a five-year low of 2% in June. The average house price rose to £217,010.
And UK mortgage approvals reached a five-month high in June, according to Bank of England data. A total of 65,519 mortgages were approved for house purchases during the month, the highest number since January and up from 64,684 in May.
Bank data also showed that annual growth in consumer borrowing, excluding mortgages, was unchanged at 8.8% in June. Total credit card borrowing was 9.5% higher in June than a year ago, up from 9.4% in May.
Main source of information: Company Report and Accounts, Bloomberg
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