BoE raises rates for first time in a decade

The Bank of England (BoE) has today voted seven-to-two in favour of raising the UK’s base rate from 0.25% to 0.5%. This interest rate rise represents the first time the BoE has raised the base rate since 2007. The largest argument the BoE put across for the rate rise was the fact that inflation continues to run at 3%, ahead of their 2% target. It has, however, been termed a ‘dovish hike’, given that the BoE has stated that two hikes in the next three years is sufficient to return inflation back to its 2% target, which reflects a very slow hiking cycle. Many in the market believe that with Brexit volatility remaining high and UK growth continuing to slow, this is not the time to be raising rates which would put greater pressure on the UK’s already fragile GDP growth.  The news sent the pound sharply lower, while the internationally dominated FTSE 100 index rose and yields on UK government bonds fell, as concerns about the health of the UK economy increased demand for safer assets.