The Bank of England policymakers on Thursday raised interest rates for the first time in a decade. The apex bank raised benchmark rate by 25 basis points from 0.25 percent to 0.5 percent, according to the minutes.
The Monetary Policy Committee led by Governor Mark Carney voted 7-2 in support of the increase, while at the same time highlighting the fragile state of the economy as the nation seek to exit the European Union in 2019.
According to the report, the committee voted unanimously to maintain the bond-buying program at £435 billion, saying weak consumption growth is expected to remain sluggish in the near term before rising in line with household incomes.
However, the central bank said the strong trade was bolstered by strong global growth and pound depreciation but uncertainties surrounding the Brexit remains and continues to weigh on new investment.
Inflation rate is projected to remain above 3 percent in October, saying the past pound sterling depreciation and the surge in energy prices continue to filter through to consumer prices.
Also, the effects of rising import prices on inflation will likely diminish over the next few years and domestic inflationary pressures are predicted to pick up as spare capacity is absorbed and wage growth gradually recovers.
“On balance, inflation is expected to fall back over the next year and, conditioned on the gently rising path of Bank Rate implied by current market yields, to approach the 2 percent target by the end of the forecast period,†the report reads.
The fragile construction sector rebounded from a record low in October, while the manufacturing sector unexpectedly expanded than forecast in the same month. Meaning, the U.K. economy remained resilience, however, slowing business investment amid Brexit negotiation continued to impact productivity. And with borrowing cost now higher, the economic growth rate may shrink further. Currently growing at the slowest rate among the Group seven nations.
