The Bank Of England has raised the base rate from 0.5 per cent to 0.75 per cent, an increase of 0.25 per cent, says Gerald Davies, executive chairman of Newport-based Kymin Financial Planners.

The decision was a unanimous one, all nine members of the Monetary Policy Committee having voted in favour. You may remember that there was a lot of speculation about a rate rise in May, but that never came to anything.

Why have they done it?

The answer is to put the brakes on inflation, which is running at 2.4 per cent against a long term target rate of two per cent.

Another factor is to bring some relief to savers, though this change alone will do little. The Governor of the Bank of England, Mark Carney, expects three more interest rate rises to 1.5 per cent by 2021.

What does it mean?

Depends who you are. Not much to savers, at this point.

Banks are unlikely to raise rates as they are expected to seek to recover profit margins which have been squeezed since 2009.

A minority of mortgage borrowers, depending on the terms of their loan, will see an immediate rise in monthly payments. However, between two thirds and 95 per cent of mortgages are on fixed rate terms, (depends who you listen to,) so will not face an immediate increase.

I’ve seen a calculation that, for an £150,000 mortgage, this increase is likely to cost an extra £14 per month. So, to this limited extent, borrowers will pay more.

Some background may be useful.

The Bank Rate has been at 0.5 per cent or lower since March 2009.

You may remember the rate used to alter with great regularity, when Chancellors, and more recently the Monetary Policy Committee, tinkered with the rate in order to try to micro-manage the economy.

Some of you may remember paying an eye-watering 17 per cent interest on your mortgage, back in the 1970s.

We have become used to a climate of low or near zero borrowing costs over a longish period during this recent period of ‘cheap money’. Even the prospect of 1.5 per cent base rates within a few years need not panic us.

So, how should people act in the light of this news and what steps should they take? Borrowers don’t have much choice but to pay up. There is no doubt that we have become used to low interest rates, so we will need to get used to an increasing burden.

Savers are in a different category. There are a number of short-term ‘taster offers’ of reasonable interest payments, for a strictly limited time, usually 12 months.

But, if you think about it, banks (and building societies) have always operated by borrowing cheap, from you, and lending to someone else. That’s how they work. The only argument is about the margin of profit they make.

The ISA revolution, whereby billions of money is lent to the banks by the public at, frankly, insulting rates of interest, is one of the peculiarities of modern times.

Stocks and shares ISAs will become even more popular, as the public understand the risks and the rewards of these schemes.

Despite all the sound and fury over Brexit, the FTSE 100 index (Financial Times Index of the top 100 shares) has moved in a narrow range, from 7,500 and 7,800 since the end of April. But there is one other important factor.

The average dividend yield is 3.8 per cent. Compare that to the rate being offered for cash. Personally, I have remained fully invested in the stock market. You have to ask yourself why so many of the really big investors are there. Because they are in it for the long term.

Remember, on January 2, 2009, the Footsie100 index was 3,830. Investors who hung on have seen their money double. And that doesn’t include the dividend stream over the last nine years.

Cash is King some people say, but not right now, nor do I see it in the near future.

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