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Bank of England raises key interest rate

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RBI raises key policy rate by 25 bps to 6.50%, holds stance at neutral

More broadly, trade disputes between the USA and major powers are also casting a shadow over the world economy's outlook.

This is because banks use it as a reference point for the amount they pay savers and charge borrowers.

The Bank of England has raised interest rates above 0.5 per cent for the first time in almost a decade in a decision that will affect millions of savers, mortgage holders and borrowers across the UK. "While a quarter-point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty".

"The first is that the journey upward is likely to be a slow grind indeed, so trends aren't going to reverse overnight. Both the employment rate and number of vacancies are at record highs, and job-to-job flows are back around pre-crisis levels".

Sterling, trading at $1.3081 before the rate rise was announced, rose to $1.3129, down 0.1 percent on the day against a broadly stronger dollar.

Economists have challenged the need for Thursday's hike given the risks posed by Brexit and the harm an escalating tariff conflict between Washington and Beijing could do to the global economy.

Its decision to raise repo rate by 25 bps for the second time in succession is a clear desire to frontload the rate hike cycle, said Kumar. As per reports, the hike of interest rates n June was a benchmark lending rate in past four years.

Savers will welcome the increase, but mortgage holders on variable terms will be negatively affected by the decision. "This will affect exit routes for short term loans, but unless there is an expectation of further increases in the medium term, I don't expect rate rises to affect short term lenders".

A bigger or smaller majority for an increase could be seen as a sign that the committee is more or less likely to move again soon on rates. RBI had last raised the repo rate on June 6 by 0.25 per cent to 6.25 per cent.

"However, with fixed mortgage rates still low in comparison, borrowers will be significantly better off switching deals now before it may be too late".

"Given the upside risks to inflation, discussed extensively, another policy rate hike can not be ruled out", he said. This means older people get better value for their money on this form of insurance product.

She added: "However, rates still have a long way to climb, as back in February 2009 - the last time base rate stood above 0.50% - the average easy access account paid 1.19%, whereas now it pays just 0.53%".

"Scotland's growth over the last three years has lagged behind the United Kingdom, so whilst the Bank may judge that the United Kingdom economy is in sufficiently robust health to cope with a rate hike, a rate rise in Scotland may be more of a challenge".

Assocham President Sandeep Jajodia said: "We move towards a festive season, which should be helping the growth further and not remain subdued because of rising interest rates".

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