- The pound has dropped to a 37-year low against the dollar and raising interest rates seems to be a must for the Bank of England.
- The biggest hike in interest rates for more than three decades is expected to be announced by the Bank of England today.
- Interest rates are likely to increase by 0.75 percentage points from 1.75% to 2.5% when the Monetary Policy Committee (MPC) meets today.
- It would be the highest interest rate that the UK has had since the financial crisis. In December 2008, the base rate was slashed from 3% to 2%.
- It would also be the highest single increase in interest rates since 1989.
- Yesterday, as expected, we saw a 0.75% hike in US Federal rates.
Will an interest rate hike ease things for the pound?
The pound is having a really bad time against the US dollar. Once unthinkable, Pound-Dollar Parity is now within sight following the Euro’s stabilized residence below $1.
A country’s currency often gains value against other currencies as rates increase because there is a greater demand for domestic money. Commercial banks pass on higher rates when a central bank lifts interest rates to both consumers and companies.
First time home buyers will not be the biggest fans of this hike. “Borrowing a house is like a dream, and buying a house looks like a nightmare in the UK’s current economy”, Investmentals analyst Jim Boykin said. He added, “Taking a look at the current house prices, the increasing interest rates will be more like a hammer pounding the public, but there is no other way out.”
Update: BoE raises interest rates by 0.5%.