The MPC suggested the hike was needed to offset squeezed living standards and sluggish wage growth.
In a television interview after the decision, Carney said he and the MPC were “beginning to shift” on when to raise rates. “We will take that decision based on the data. I guess that possibility has definitely increased,” he said.
Financial markets now suggest there is a 42% chance of an interest rate increase in November, up from just 18% a week ago. The odds on a December rise are now 54%.
The squeeze on households and a strengthening economy mean “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”, the Bank said. It added that a majority of the interest rate setting committee agreed with that assessment, and the governor, Mark Carney, later confirmed that he shared the majority view.
Sterling spiked to a one-year high following Carney’s comments.
“Over 2.2 million first-time buyers have bought a home with a mortgage and benefitted from low mortgage costs since interest rates fell to 0.5% in March 2009,” said Shaun Church, director at Mortgage Broker Private Finance.
Church continued: “Although the Bank of England hasn’t raised rates this time around, the message is clear that consumers should be aware this might happen sooner than expected. When rates do eventually rise, it will be first time over two million people have experienced this as a mortgage holder, and more rises are likely follow.”
He went on to say that while today’s rock bottom mortgage rates can’t last forever, further base rate rises are likely to be gradual and mortgage rates won’t necessarily rise at the same rate.
Church explained that homeowners still have plenty of time to prepare for an increase in pricing in the future. “Healthy competition between lenders should ensure that mortgage pricing remains low for some time yet. have plenty of time to prepare for a slight increase in pricing in the coming years.”