John McDonnell warns interest rate hike could 'push families into more debt'
3 min read
Families in debt could be clobbered by fresh costs, Labour has warned, as the Bank of England hiked interest rates to their highest level since the financial crash.
The central bank announced this lunchtime that its Monetary Policy Committee (MPC) had unanimously backed a move to increase the cost of borrowing by raising the Bank rate from 0.5% to 0.75%.
Rates were dramatically slashed in the wake of the 2007 financial crisis, falling from 5.75% to just 0.5% by 2009. They were cut again to an historic low of 0.25% following Britain’s vote to leave the European Union, before being raised slightly late last year.
But today’s rate of 0.75% puts the cost of borrowing at its highest for almost a decade, and Shadow Chancellor John McDonnell said the move could cause fresh trouble for families relying on loans and mortages.
"Given recent revelations that households are spending more than they receive in income for the first time since 1988, today's rise will be a blow to those facing high levels of personal debt," he said.
"The Tories' economic failure is making life difficult for families across the UK. They must change tack and end austerity once and for all."
Spelling out the reasons for the move, Governor Mark Carney said the Bank’s plan to stabilise the economy after the Brexit vote had “worked”, with the latest measure designed to help keep price rises in check.
He told a press conference at the Bank: "Today employment is at a record high. There’s very limited spare capacity in the economy. Real wages are picking up and external price pressures are declining.
"With domestically-generated inflation building and the prospect of excess demand in the economy emerging, a modest tightening of monetary policy is now appropriate to return inflation to its 2% target and to keep it there."
The Bank predicts that inflation will fall back to 2% - the target the BoE is asked to try and meet by ministers - by the end of the decade.
Inflation currently stands at 2.4%.
The BoE is meanwhile predicting “modest” economic growth of 1.4% this year, rising to 1.8% next year, with unemployment also set to fall further.
Earlier this year, Labour vowed to hand the Bank of England a further target to try and turn around Britain’s flagging productivity levels.
Since the onset of the financial crisis, UK productivity - a measure of how much workers generate for the economy for every hour they put in - has been relatively weak compared to other major economies.
But Mr McDonnell said the independent bank would have to update ministers at every Budget on how it plans to meet the new target of hiking Britain’s productivity by 3%.
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