| 16.3°C Belfast

First interest rate rise since 2007 will have a 'modest impact' in NI


The Bank of England has raised interest rates

The Bank of England has raised interest rates


Mark Carney

Mark Carney

AFP/Getty Images


The Bank of England has raised interest rates

The first interest rate hike for over 10 years will have just a "modest impact" on Northern Ireland families and individuals as the Bank of England ushers in gradual rises in the cost of borrowing.

The Bank's nine-strong Monetary Policy Committee (MPC) has voted 7-2 to raise rates from 0.25% to 0.5%, which marks the first increase since July 2007.

The quarter-point rise reverses the emergency cut seen in the aftermath of the Brexit vote shock in 2016 as the Bank sought to head off turmoil in the economy.

The timing of the rise divided opinion, with Paul MacFlynn of the Nevin Economic Research Institute calling it "ill-advised", while Dr Esmond Birnie of the Ulster University's economic policy centre called it "painful but necessary".

Danske Bank economist Conor Lambe said: "On its own, the increase is likely to have only a modest impact.

"On the borrowing side, looking at the housing market, many mortgage holders are now on fixed rates and so the interest they pay on their borrowing won't change immediately.

"But variable rate mortgage holders will likely see a slight rise in their monthly mortgage payments.

Weekly Business Digest

Margaret Canning’s selection of the must-read business stories straight to your inbox every Tuesday morning

This field is required

For savers, they may see an increase on the rate paid on their deposits."

And he emphasised that despite the significance of the first rise in rates for a decade, a low interest rate environment still prevailed.

"For both savers and borrowers, an interest rate of 0.5% still represents a low rate compared with long-term historic trends.

"Looking forward, the MPC has made it clear that any further rises in interest rates will take place at a gradual pace."

Millions of borrowers on variable rate deals will be impacted by the decision, which will add around £15 a month to the cost of the average mortgage.

But it will offer some relief to savers hit by surging inflation and negligible returns.

Bank governor Mark Carney said: "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 off the accelerator."

The move comes as the Bank looks to dampen Brexit-fuelled inflation, which it predicts will peak at around 3.2% this autumn.

The Bank's quarterly inflation report is based on financial market expectations for two more rate hikes over the next three years to return inflation back to its 2% target, which could see rates hit 1% by the end of 2020.

But sterling fell sharply, down more than 1% to $1.31 and €1.12, as the Bank's comments over future rises were more cautious than expected.

The milestone rate hike comes as the Bank cut its forecast for growth to 1.6% for 2017 from the 1.7% previously predicted, but held forecasts at 1.6% for 2018 and 1.7% for 2019.

It is pencilling in growth of 1.7% for 2020.

Nearly four million households face higher mortgage interest payments following the hike, although Mr Carney stressed the impact would be modest and gradual, with around 60% of borrowers on fixed rate deals. He said: "Households are generally well positioned for a rate increase. More are in work than ever before. Only about one-fifth of people with mortgages have never experienced an increase in bank rate."

Mr Carney added that monetary policy would continue to provide "significant support" to the economy.

On the rates decision, Chancellor Philip Hammond tweeted: "Our economy is strong and resilient, supported by independent monetary policy and stable prices from the Bank of England."