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Banks hint at accelerated interest rate rise

Bank policymakers voted unanimously to keep interest rates on hold at 0.5% at their latest meeting, despite all of the BoE’s Monetary Policy Committee agreeing that the central bank would no longer be willing to tolerate inflation above its 2 per cent target for the next three years.

It's been suggested that the next rate rise could come as soon as May.

The value of the pound initially jumped almost 1% against the dollar, but fell back to about 0.5%.

Higher interest rates have an important effect on households and the economy. Around 8.1 million UK households have a mortgage, and of those almost half are on either a standard variable rate or a tracker rate.

Interest rates on those types of mortgages would be likely to match any increase in official rates made by the Bank of England. But for savers, a move higher by the Bank of England could be a bonus, as High Street banks generally have to raise their rates of interest.

In November, the Bank raised the cost of borrowing for the first time in more than 10 years - from 0.25% to 0.5%. Its forecasts at the time indicated there could be two more increases of 0.25% over three years.

But it now appears there could be a third increase and those rises could be sooner than expected.