Bank of England expected to unveil big interest rate rate hike on Thursday
The Monetary Policy Committee (MPC) is expected to increase rates by 0.75 percentage points to 2.5%.
It would be the highest interest rate that the UK has had since the financial crisis. In December 2008 the base rate was slashed from 3% to 2%.
It would also be the highest single increase to interest rates since 1989.
“Investors think the most likely outcome is that the MPC will increase the Bank rate by 75bp (0.75 percentage points) on Thursday,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
But he said that economists are expecting a smaller rise, to 2.25% – the same 0.5 percentage point change as the Bank’s last hike.
“For a start, hawkish surprises from the MPC have been far less common than dovish ones over the last year,” he said.
“In addition, Governor Bailey openly referred to a 50bp hike ahead of the August meeting, but has not given markets a nudge to price-in a 75bp hike.
Consistent
“We think that the MPC still will deem a 50bp increase to be consistent with its pledge to act ‘forcefully’, if it sees signs of more persistent inflationary pressures.”
ING economist James Smith said that the Bank of England will have to react to recent falls in the price of the pound. Sterling hit a new 37-year low against the dollar on Friday.
“Next week’s Bank of England meeting is crucial,” he said.
“It will tell us not only how worried policymakers are about the slide in sterling and other UK markets, but also how the Government’s decision to cap household/business energy prices will translate into monetary policy.”
“We narrowly favour a 50bp hike on Thursday, taking the Bank Rate to 2.25%, although 75bp is clearly on the table and we would expect at least a couple of policymakers to vote for it.”
He said that rates will likely rise again in November and December, hitting 3% by the end of the year.
The decision to hike interest rates is a bid to keep inflation under control. It is the best tool that the Bank of England has to steer inflation – currently at 9.9% – back to its 2% target.
But the decisions will also have major impacts on people’s finances, not least those with mortgages who will need to start paying more for their home loans.
The MPC was originally set to announce its decision on Thursday September 15, but delayed this for a week due to the Queen’s death.
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That Base rate is almost a fiction of no relevance to our daily lives. Most people including many SME’s are paying several % points higher already. Base rate has served government well as they have been borrowing at historically low rates when they haven’t resorted to printing money and credits.
For those who are not wholly familiar with this sort of stuff there are two good articles by Prof. Richard Murphy. This one explains why raising Bank Rate is not sensible: https://www.prospectmagazine.co.uk/economics-and-finance/the-bank-of-england-is-raising-interest-rates-that-spells-misery-for-the-poorest This one gives quite a good discussion of the money supply and taxarion, but be aware that it was written before the Russian war on Ukraine which kick started external inflation. However the main thust is money supply and taxation. https://committees.parliament.uk/writtenevidence/12911/pdf/ It is a long read, but the later sections are most illuminating not least because they show that the sort of nonsense spouted by the Billionaire media… Read more »
This is notice to many thousands that they need to prepare to move out like when a massive hike in the late ‘80s forced me to do just that. Mortgage up by over £200 per month had me running for the hills. Now we have massive utility bills along with Bozo recently saying that people on benefits could get mortgages. Total unsustainable insanity. Watch the repossessions go now. Tragic.