Bank of England hikes rates for first time in 10 years

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Sterling steadied on Thursday, consolidating some chunky gains this week, especially against the euro, before a historic Bank of England policy decision where it is widely expected to raise interest rates for the first time in almost a decade. Since the vote to Leave the European Union, the pounds' devaluation has triggered the highest inflation among the G7 economies.

However, seeking to address this through an increase in interest rates is something of a blunt instrument.

Around eight million Britons have never seen an interest rates rise in their adult lives, experts say, with rates languishing at rock-bottom lows after the country fell into a deep recession. Approximately 8,1 million households service a mortgage in the United Kingdom, although approximately half have a fixed rate contract.

In its statement accompanying the decision to return rates to their pre-Brexit referendum level of 0.5 percent from a record low 0.25 percent, the Bank said any future increases will be "very gradual" in pace and to a "limited" extent.

The Bank estimates that nearly two million mortgage holders have not experienced an interest rate rise since taking out a mortgage.

A number of banks and building societies have already announced they will be increasing their rates in line with the rise announced by the Bank of England today.

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Sterling has been on the up this week, as markets prepare for a potential interest rate hike. 'Today's quarter point rate hike shouldn't raise eyebrows, and looks for now to be a one-off muscle flex by the Bank of England, rather than the start of an aggressive tightening, ' he said.

But the Bank also said its forecasts are based on the assumption of a "smooth adjustment" of the United Kingdom economy to Brexit, something that has been thrown into increasing doubt by the failure of the Government to make any substantive progress in its Article 50 divorce negotiations with the European Union.

Mr Carney said "Brexit-related constraints" on investment and workers appeared to be holding back the potential growth of the economy. In September, inflation reached 3%, the highest in five years.

The Bank of England is tasked with keeping consumer price inflation at around 2%. The two dissenters thought a hike wasn't warranted yet, and the majority isn't exactly bullish on the prospects for the British economy. The Bank says this effect is probably at its peak at the moment.

Also, although it is well above the Government's 2% target, the current inflation rate of 3% is still well short of two previous spikes seen since the financial crisis of 2008.

It would be different were there any sign of wages starting to follow prices higher but, in fact, annual growth in pay is continuing to lag well behind inflation.