Interest rates decision - As it happened: Pound sterling falls after rate hike, as Bank of England hints at future increases

All the latest news and views on the decision from Threadneedle Street

Bank of England announces rise in interest rates

The Bank of England raised its benchmark interest rates today to 0.75 per cent, its highest level since the depths of the financial crisis in March 2009 when the benchmark was slashed to 0.5 per cent.

Despite the rise, sterling fell 0.8 per cent after the decision as BoE Governor Mark Carney reiterated that future interest rate rises would be "gradual and limited"

All nine members of the BoE's Monetary Policy Committee (MPC) voted to raise the base rate by a quarter of a per cent.

Economists had been predicting a split vote thanks to mixed signals for the strength of the UK economy.

But the MPC said the economy had recovered from a seasonal slowdown exacerbated by the Beast from the East.

"The MPC continues to judge that the UK economy currently has a very limited degree of slack," the committee said in minutes published with its decision.

"Unemployment is low and is projected to fall a little further. In the MPC’s central projection, therefore, a small margin of excess demand emerges by late 2019 and builds thereafter, feeding through into higher growth in domestic costs than has been seen over recent years."

Speaking after the decision, Mr Carney said that growth in pay has increased, with further wage rises expected this year.

However, wage growth has remained below pre-crisis level and household debt has risen sharply.

Analysts said this means some households may struggle with the rise in borrowing costs, dragging down the consumer spending that drives much of the economy.

Mr Carney played down those concerns, saying that the costs of servicing that debt is lower now than it was before the crisis.

Here's how the day unfolded:

Unemployment is at a 42-year low, inflation is above target and businesses, signs that would normally point to a rate rise.

Key Points

• Mark Carney explains decision to raise interest rates 
• More rate rises could be in store over next three years, says BoE governor
• Business groups warn interest rate hike poses threat to UK economy

[2 August 2018 10:31 · Samuel Osborne]

UK construction grew at its fastest pace in 14 months according to Markit's latest purchasing managers index, released today. 

PMI rose to 55.8 in July, with anything above 50 indicated the sector is expanding.

That was well ahead of analysts predictions and will add to reasons for the BoE to raise rates.

[2 August 2018 10:36 · Samuel Osborne]

The growth in construction indicated by the latest PMI survey is "surprising" given uncertainty for firms around Brexit, says Samuel Tombs, chief UK economist at Pantheon.

"Some survey respondents reported that they were particularly busy as they were making up for work postponed earlier in the year due to the bad weather, but most reported that underlying demand was picking up too.

"Housebuilding outperformed, with new work rising at the fastest rate since December 2015. Commercial work also grew at the fastest rate for two-and-a-half years, but civil engineering work remained essentially flat."

[2 August 2018 11:01 · Samuel Osborne]

More data suggesting many consumers' budgets are stretched published by the Office for National Statistics (ONS).

• 12 per cent of respondents in the period July 2016 to December 2017 reported that they always or most of the time ran out of money at the end of the week or month, or needed a credit card or overdraft to get by in the past year

• 44 per cent said they would not be able to make ends meet for longer than three months if they lost the main source of household income, down slightly from 46 per cent in July 2014 

• Almost half of 16-24 year-olds wouldn't be able to make ends meet for more than a month if they lost their main source of income

A raise in interest rates would further stretch budgets. What impact might this have on the BoE's decision? 

[2 August 2018 11:03 · Samuel Osborne]

Tom McPhail, head of policy at Hargreaves Lansdown on the latest ONS data:

“These latest figures show an there are still millions of households and individuals who are just one or two pay-cheques away from a financial precipice...

“These financial challenges may be exacerbated by the expected interest rate rise later today.” 

[2 August 2018 11:08 · Samuel Osborne]

What impact might a rate rise have on households' finances? A few possibilities here:

[2 August 2018 11:15 · Samuel Osborne]

Another thing potentially weighing on the minds of the nine members of the Bank's Monetary Policy Committee will be the prospect of a trade war between China and the US threatening to derail the global economy. 

The US is currently reporting string growth, but will that last?

[2 August 2018 11:32 · Samuel Osborne]

Less than half an hour to go until the decision that could mark a symbolic move beyond the financial crisis era.

A raise in rates is long overdue, says Alex Brandreth, deputy chief investment officer of Brown Shipley.

“Ultimately, interest rate normalisation is long overdue, with the overall strength of the economy and its growth over the last five years suggesting that we could withstand higher interest rates despite inflationary pressure.    “In hindsight, the UK has actually been quite fortunate with the timing of Brexit, in the sense that it has coincided with the strongest period of global growth since the financial crisis and a world that has been the most synchronised it has ever been from a globalisation perspective. 

[2 August 2018 11:47 · Samuel Osborne]

[2 August 2018 11:51 · Samuel Osborne]

An interest rate rise would be a "needless risk" to the UK economy, says Tom Stevenson, investment director for personal investing at Fidelity International 

"While it’s been heavily anticipated, this doesn’t necessarily make it the right decision. If we look at the latest economic data, wages are still subdued, inflation has been softer than expected and the political situation, both domestically and globally, is precarious.

“Arguably, the rate hike is a needless risk to the UK economy. If the Bank of England delivers tomorrow, it will be more about preserving its reputation and credibility than economic necessity."

[2 August 2018 12:01 · Samuel Osborne]

BREAKING: The Bank of England's MPC has voted unanimously to raise its benchmark interest rate to 0.75 per cent, the highest since the midst of the financial crisis in March 2009.