Bank of England expected to keep interest rates unchanged again

Experts think that the Bank of England will avoid another interest rate rise when it meets next week, the second pause in a row after almost two years of consecutive hikes.

The base rate, which influences the interest that people pay on their mortgages, is widely expected to be kept at 5.25%, although markets see some chance that it could rise.

James Smith, a developed markets economist at ING, said that the meeting is likely to be highly predictable. In September, four of the nine-person monetary policy committee (MPC) voted to raise rates to 5.5%.

“It would only take one committee member to change their mind to tip the balance in favour of more tightening – but we’re doubtful,” Mr Smith said.

He said that there had been little new data since the last vote, so those who voted against hiking rates are unlikely to change their minds. He added that one of those who voted to hike last time – Jon Cunliffe – has since left the MPC.

Experts at Investec said that the decision makers might still decide to hike rates. They said that the MPC last time put a lot of weight behind the fall in the flash Purchasing Managers’ Index.

But this flash measure – which is preliminary – was later heavily revised.

Weaker

But Investec said that “the case for raising rates further now does look somewhat weaker to us than at the last meeting, for a number of other reasons.”

Is said that since last time economic data has been soft, including lower than expected inflation in September, worse gross domestic product than in prior forecasts, and weak retail sales and consumer confidence.

“It is not a fully coherent picture, but one consistent with the economy at the early stages of entering a recession.

“How the jobs market is faring is, regrettably, unclear. Given methodology changes the ONS made to derive unemployment and employment numbers, due to low response rates to the usual Labour Force Survey, the MPC is essentially flying blind in this regard.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “As more homeowners are forced to take on big increases in monthly mortgage costs as their deals come to an end, the effect of financial fragility is likely to show up in more frugal spending patterns and more uncertainty about jobs moves and reticence when it comes to pay demands.

“Already the economy is flatlining, with growth proving very elusive, showing that demand is being squeezed out.

“Fresh weakness in the housing market, with prices continuing to fall, affects people’s perceptions of their wealth – and with house moves on hold, it won’t encourage spending on renovations and interior decor.

“If wage growth and goods and services price increases keep heading down, it’ll make policymakers more adverse to another hike.

“But given the stop-start nature of the downwards march of inflation and its very stubborn tendencies, any cut still doesn’t look likely until the second half of next year, particularly with oil prices remaining elevated among geo-political tensions.”