Pound plunges as Bank hikes interest rates

The pound hovered above the 87p to the €1 mark – a level not seen since June – as data showed British manufacturers reported robust growth for October reinforcing speculation of a rate hike

The Bank of England's indication on Thursday that it will raise Bank Rate twice more by the end of 2020 is not set in stone, one of its top decision-makers said.

Britain's economy slowed sharply this year after the Brexit vote in 2016, raising questions about the wisdom of raising rates now among many economists.

Peter Seymour, the managing director of Jersey's Mortgage Shop, said the 0.25% increase would have a "modest" impact on home owners.

Lloyds has also admitted that a rate rise was not on the cards for its 22 million current account holders, many of whom will use these accounts for building up cash savings.

According to Mr Seymour, someone on a tracker mortgage now paying 3.49% over 30 years on a £460,000 property - the average cost of a home in Jersey - and for which they paid a ten per cent deposit, will see their monthly payments increase by £59 a month.

The high inflation and sliding real earnings, both fueled by a weak exchange rate, would threaten to destabilize consumer spending, the bedrock of the economy.

A rate rise would normally boost the pound, but the note of caution about future increases sent sterling down sharply.

The Bank of England has increased its base rate for the first time in a decade from 0.25% to 0.5%.

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

The reluctance is at odds with comments from Theresa May's official spokesman, who said on Thursday: 'Following the rate rise, we would expect to see higher interest rates to be passed on to savers'.

But it will offer some relief to savers hit by surging inflation and negligible returns. "And that is not what the governor said yesterday either". Today's rate hike-from 0.25% to 0.5%-does little more than reverse the cut in August 2016, in the immediate aftermath of the European Union referendum that officials feared would lead to a recession.

Banks have no obligation to pass on rate changes to their SVR (standard variable rate), but they invariably will.

The hike was moderate and the interest payments on debt were still at record lows, the policymaker pointed out. In the United Kingdom fixed-rate mortgages are often limited to one to five years before converting to a standard variable-rate mortgage. More are in work than ever before.

In remarks to the BBC's Today programme, the Bank's Deputy Governor, Ben Broadbent, said: "Given all the other things we assume in our forecasts, many of which will be misses [.], we anticipate we will need maybe a couple more rate rises to get inflation back on track while at the same time supporting 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".

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