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Bank of England

BofE raises interest rates by 0.25 per cent

The Bank of England has raised interest rates by a quarter point to 0.5 per cent, the first interest rate rise in a decade.

Commenting on the decision, Andrew Fowkes, Head of Retail Centre of Excellence, SAS UK & Ireland says: “Today’s decision to increase interest rates will be felt by consumers immediately.

“Some brands have already invested in the ability to respond to external events in real-time to survive and thrive. Our research shows that over half (55 per cent) of UK organisations use changes in financial markets to inform their customer interactions, with telco providers, insurance companies and retail banks leading the charge.

“What’s more, 60 per cent of businesses have the agility to adjust marketing campaigns and customer communications in a single day so customers should be prepared.

“For the financial sector, a rise in interest rates will offer some relief. A period of record-low interest rates, new competition chipping away at profitability and growing compliance pressures have all suppressed margins so consumers should be prepared for an almost instant reaction.

“However, only those organisations that are in a position to extract insights from the wealth of data available will be able to respond. A unified data analytics framework that leverages a variety of technologies, including artificial intelligence and machine learning, must be in place to move at speed and not get left behind.”

John Husselbee, Head of Multi-Asset at Liontrust comments that debate has turned to whether this marks the start of a sustained tightening cycle or simply represents a reversal of what critics now largely consider a premature cut in the aftermath of Brexit.

Husselbee says: “For my part, I would veer towards the latter. Despite some initial panic after the Brexit vote, the rate cut increasingly seemed unnecessary based on the market and economy’s subsequent performance. The Bank of England appeared keen to get the level back up to 0.50 per cent at the earliest opportunity and a pick-up in inflation has provided this.
“We remain comfortable in the prevailing Goldilocks conditions as low inflation and slow but steady growth persist. The key question now is what exactly is making up that growth and how this rate hike might affect it – and that is likely to dominate sentiment in the final months of the year and beyond.”

Meanwhile, Vince Smith-Hughes, retirement expert at Prudential, comments that rising interest rates will suit people who are in retirement. He says: “Rising interest rates will be welcomed by retired people who often have a large proportion of their savings in deposit accounts. Rising inflation has eroded their retirement income as deposit accounts fail to keep pace with inflation. The rise in interest rates will hopefully see better returns from savings accounts. Using the right wrappers to minimise tax is also important.”

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