Why Bank of England has raised interest rates?

The Bank of England in UK has raised interest rate for the first time in more than a decade from 0.25% to 0.5%. The last such hike was done in July 2007. This move has reversed the cut that was made in August, 2016 in the wake of vote to leave EU. This move is going to affect some four million households who would need to pay higher mortgage interest payments. It would also help the savers to get some better returns on their savings.

The nine member Monetary Policy Committee (MPC) of England gives the reasons that falling unemployment indicates a “limited” slack in the economy and rates should be hiked. They argue that growth cannot accelerate without price rise. in UK, the Bank of England is tasked to keep inflation within a target of 2% but the inflation has been on higher side for last few years. However, despite that so far the rates were not raised.

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