How the Bank of England’s interest rate rise affects you

The Bank of England’s monetary policy committee appears almost certain to raise interest rates this week

In line with market expectations, the Reserve Bank of India (RBI) Wednesday increased its benchmark interest rate by 25 basis points on inflationary concerns.

While Repo rate is the rate at which the central bank lends money to the banks, the reverse repo rate is the rate at which banks lend money to the RBI.

While savers may be hoping for better returns, Bank of England statistics show that the average interest rate on United Kingdom current accounts increased by only 0.09% in the seven months since rates were increased by 0.25% previous year.

Sterlingis trading at the day's low despite the Bank of England voting 9-0 for a 0.25% interest rate hike at today's MPC meeting.

The Bank of England has raised interest rates to their highest level in nearly a decade but what are the effects of an interest rate increase on day-to-day finances? At its June meeting of the monetary policy committee, the central bank had hiked rates from 6 per cent to 6.25 per cent. "The MPC reiterates its commitment to achieving the medium-term target for headline inflation of 4 per cent on a durable basis", it said.

Analysts say that the hike will not have a major affect on non-resident Indians (NRIs) in the UAE, except those who are holding floating mortgage rates back in India because most of the existing auto and personal loans are obtained at a fixed rates. However, the MPC being headed by RBI Governor Urijit Patel has kept their stance neutral.

Image copyright Reuters Image caption The Bank of England is expected to raise interest rates to 0.75% How has the economy performed?

Investec economist George Brown said he is "fairly confident" the Bank will move to raise rates and is pencilling in an 8-1 vote in favour, with Sir Jon Cunliffe the only dissenter.

Dheeraj Singh, Head of Investments & Fund Manager - Fixed Income, Taurus Mutual Fund: "The decision to hike rates has, quite clearly, been driven by the persistent increase in headline and core inflation that we have witnessed in the last couple of months".

The August Inflation Report shows forecasted growth for the third-quarter 2018 has been upgraded to 1.5% from 1.4%, while third-quarter 2018 growth forecasts are raised from 1.7% to 1.8%.

HSBC is upping its rate today while Lloyds and Halifax, the UK's biggest mortgage lender, plan to do so next month.

All loans to United Kingdom businesses linked to the base rate will move in line with the change and in accordance with the terms of the deal.

"Regardless of whether their rate increases or not, savers should use this latest rise to assess their options and ensure that, at the very least, their account pays more than base rate". The reserve repo rate is the rate at which RBI borrows money from commercial banks.

"Rates can be expected to rise gradually".

This is the first time the borrowing rate has been set at 0.75% - when the rate was cut in March 2009 it was by half a percentage point.

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