Interest rate rise 'because of Brexit' says Mark Carney

Mark Carney - PA

Mark Carney has said the fall in the pound after the EU referendum was a key factor in the decision to raise interest rates for the first time in over ten years.

The official rate for banks has been lifted from 0.25 per cent to 0.5 per cent, the first increase since July 2007.

Bank of England Governor Carney cited the Brexit effect for inflationary pressures which led to the rise, and added its progress would impact on decisions on the rate in the future.

"Let's talk about the most likely reason for an adjustment in policy, in either direction,” he said.

“[It is] if there is some form of resolution around the big issues around Brexit - either having a transition deal or much greater clarity about the end state."

The increase will seek to prevent further price rises in line with Carney’s inflation target of around 2 per cent.

Speaking at a press conference, Carney said the hike was necessary “to achieve a sustainable return of inflation to target.

“That is we must aim to bring inflation back to target and keep it there once the effects of temporary factors, currently predominantly those caused by the referendum-related fall in sterling, dissipate.”

He added: “With unemployment at a 42-year-low, inflation running above target and growth just above its new lower speed limit, the time has come to ease our foot a little off the accelerator.” 

The announcement triggered a further fall in the pound to £1.124 against the Euro.

Trade Unions have expressed disappointment in the decision.

TUC General Secretary Frances O’Grady said the decision would be “a hammer blow for those in problem debt, whose repayments will now rise".

Grahame Smith, Scottish Trades Union Congress (STUC) General Secretary said: “Persistently low productivity, growth and the self-inflicted impact of Brexit and its effect on Sterling are major factors with which our economy must contend. 

“The inescapable conclusion is that today’s interest rate rise, coming at a time when growth is so slow, is a product of failed economic and fiscal policy since 2010. Rock bottom interest rates have failed to properly spark economic growth because the Government did too little to boost demand. 

“The fall in unemployment has been accompanied by low productivity because so many of the new jobs are low skill, low paid and insecure. 

“And quantitative easing benefitted the rich but, for the majority, the effect was rising house prices, sluggish real wages and widening inequality.”