At lunchtime today, United Kingdom time, the Bank of England looks set to raise interest rates for just the second time since the financial crisis.

For the second consecutive time, the six-member MPC headed by RBI Governor Urjit Patel has hiked the key policy repo rate by 25 basis points.


The reverse repo rate was also raised by 25 basis points, to 6.25 per cent.

The interest rate rise will increase the cost of around 3.7 million residential mortgages that have variable or tracker rates.

The banks have been tested to ensure they have enough capital to cope with a scenario of a 4.7% fall in UK GDP, a 33% fall in house prices, interest rates rising to 4%, unemployment rising to above 9% and the pound falling further. Once this period is up, people on a fixed interest rate mortgage may see their monthly payments go up unless they remortgage and find a cheaper deal.

But it also said inflation - now running at 2.4 per cent - was set to rise slightly higher than it had predicted in May's set of forecasts after recent falls in the value of the pound and higher energy prices. It is the second hike in two months and the second under Modi government.

The pound made gains versus the euro following the rate increase up by almost 0.3 per cent at 1.128, but was still trading lower by around 0.1 per cent against the U.S. dollar at 1.311.

Charlotte Nelson, Finance Expert at Moneyfacts.co.uk, said: "With the vast number of lenders increasing rates in the lead up to May's rate announcement, providers have chosen to keep rates relatively static in the run-up to this one, having already been prepped for a rise".


This has driven the prices of fuel - the biggest item on India's import bill - to record highs at a time the rupee is testing new life lows, raising the threat of imported inflation.

RBI has projected inflation at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1 2019-20.

The rate rise may be good for retirees looking to buy an annuity - or a guaranteed income.

However the MPC says it "continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of European Union withdrawal".

The U.S. Federal Reserve held short-term interest rates in the U.S. steady Wednesday but is expected to raise them again next month.


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