Base rate rise: Bank of England raises UK interest rates for the first time in a decade

The UK's base rate of interest has risen back to 0.5 per cent.
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The UK interest rate has increased for the first time in a decade, ending 10 years of rock-bottom rates.

The antipated announcement followed a majority vote by the Monetary Policy Committee (MPC), led by the Governor Mark Carney, was seven votes to two.

This is a signal that rates may go up over the next several years at a 'gently rising rate'.

The base rate has lingered at 0.25 per cent since August 2016 when it was lowered following the Brexit vote.

It is estimated that up to eight million adults have never seen interest rates rise in their lifetime.

The last time the base rate was raised, it went up to 5.75 per cent in July 2007. Interest rates have been falling ever since.

The most dramatic drop was seen in the six months between September 2008 and March 2009, when the base rate plummeted from 5.0 per cent to 0.5 per cent.

Today the Bank of England's monetary policy committee voted to raise interest rates back up to 0.5 per cent, where it had been since March 2009.

WHAT IS THE BASE RATE?

The base rate is the interest rate that the central bank charges to lend money to commercial banks and can go up or down depending on a variety of economic factors.

In the UK it is set by the Bank of England.

Banks and building societies tend to derive the rates they offer on loans and savings from the base rate.

This means that rising interest rates are good news for savers, including first-time buyers struggling to scrabble together a deposit for their first home.

The base rate is also used by banks to determine the interest they charge on loans, including mortgages; if it rises, mortgage interest rates tend to rise too.

This means that those on tracker or variable mortgages, where the interest charged changes in line with the base rate, will see their mortgage payments increase as the base rate rises.

WHO WILL BE AFFECTED BY AN INTEREST RATE RISE?

With 43 per cent of homeowners on variable or tracker mortgages, it means millions of households will see their monthly expenditure increase in the run-up to Christmas.

This comes at the same time as many UK households are experiencing a real terms wage freeze, while being heavily indebted with both mortgages, credit cards and other loans.

"Household budgets are under pressure from the fact that wages have not been rising as fast as the cost of living," said Nationwide's chief economist, Robert Gardner. "Indeed, in real terms (i.e. after adjusting for inflation) wage rates are still at levels prevailing in 2005."