Bank expects double interest rate hike by 2019

Lester Mason
December 17, 2017

The online survey of 6,018 households was considered by the Bank's monetary policy committee before it voted to raise rates on 2 November.

Business investment, while affected by uncertainties around Brexit, was projected to continue to grow at a modest pace, supported by strong global demand, high rates of profitability, the low cost of capital and limited spare capacity.

Capital Economics research group concluded that "the MPC sounded more optimistic on Brexit, noting that recent progress in the negotiations has reduced the "likelihood of a disorderly exit" from the European Union".

Brexit, according to the rate-setters in the minutes to the meeting, remains the "most significant influence on, and source of uncertainty about, the economic outlook".

The Bank of England also believes that Philip Hammonds Budget of 22 November could boost GDP by 0.3 per cent between now and 2020, and the plans contained slightly more government spending than had previously been planned for as the chancellor eased the pace of some previously announced spending cuts.

Data released this week revealed inflation hit a six year high of 3.1 per cent.

"In such exceptional circumstances, the MPC's remit specifies that the Committee must balance any trade-off between the speed at which it intends to return inflation sustainably to the target and the support that monetary policy provides to jobs and activity."

"We do not expect the BoE to make a big deal of "sufficient progress" yet: we expect them to say they will watch the confidence data closely and update their assumptions in the February Quarterly Inflation Report".

The BoE said that inflation was now close to its peak and reiterated its view that above-target price growth is nearly all due to sterling's fall after June 2016's Brexit vote.

With inflation still rising thanks to the depreciation of the pound since the vote to leave the European Union last summer, the bank faces a key trade off, balancing that inflation with the slowdown in the economy, dwindling consumer spending and declining inward investment.

BoE policymakers voted unanimously to keep rates at 0.5 percent as expected, a month after raising them for the first time in more than a decade. Although it is too early to arrive at a comprehensive view of the effect of November's rise in Bank Rate on the economy, the impact on interest rates faced by households and firms has been consistent with previous experience.

A move higher can also give savers a lift as High Street banks generally have to raise their rates of interest.

Of the 8.1 million households with a mortgage, 3.7 million - or 46% - are on either a standard variable rate or a tracker rate - which generally move in line with the official bank rate.

Other reports by Iphone Fresh

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