The Bank of England is expected to raise interest rates again on Thursday (PA)
(Picture: PA Wire)Is the Bank of England putting up interest rates tomorrow (Thursday) at 12pm?
That seems a very safe bet. The only question is whether they will go from 0.5% to 0.75% or straight to 1%. Whichever, it will be the third consecutive rate rise since December.
The Monetary Policy Committee (MPC) first increased rates from record lows of 0.1% to 0.25% in December, making the BoE the first major central bank to take the plunge.
In February it then doubled the rate from 0.25% to 0.5%, the second increase since the start of the pandemic, and the first back-to-back hike since 2004.
The City thinks rates will rise this year to at least 2%, perhaps 2.5%, in four or five stages.
The expectation is that whatever the call tomorrow, it will be unanimous, that all nine members of the Monetary Policy Committee will back the move.
What will putting rates up do to cut my soaring energy bill?
Nothing. The Bank has at least until recently been arguing that rising bills are a temporary issue.
Thomas Pugh at RSM says: “Normally we would expect the MPC to ‘look through’ (that is Bank of England speak for ignore) a jump in inflation caused by energy prices. That’s for two good reasons.
First, energy prices are set on a global or at least continental basis, so raising UK interest rates will do nothing to reduce energy prices and help calm inflation. Second, energy prices tend to be extremely volatile. If the MPC responded to every move in global energy of foreign exchange markets it would be changing monetary policy every day. Instead, the MPC is really concerned with domestically-generated inflation – this is largely driven by wage growth.”
So what’s the point?
That’s a reasonable question. The idea is that higher borrowing costs will dampen inflation, but there is a definite feeling that the Bank is rather behind the curve here and is engaged in stable-door, horse-bolting behaviour.
Gavin Friend at National Australia Bank: “Even as UK inflation has surged from just above 2% last August to 5.5% currently and will rise to at least the BoE’s 7.25% peak in Q2, the central bank’s message of anticipated ‘modest’ rate rises being likely necessary to return to target, has remained broadly unchanged.”
The Bank still thinks it can get away with it, in other words, that inflation will come down in time without serious shocks to borrowing costs.
What’s the wider economic context?
Well, plainly the war on Ukraine is a worry. But domestically, things don’t look too bad. This week saw unemployment down to 3.9%, about where it was pre-Covid.
Paul Dales at Capital Economics said: “The further fall in the unemployment rate to within a whisker of the pre-pandemic rate will only encourage the Bank of England to raise interest rates on Thursday, probably from 0.50% to 0.75%, despite the coming extra hit to households’ real incomes from the war in Ukraine. What’s more, we think a low unemployment rate and high wage growth will prompt the Bank to raise rates to 2.00% next year.”
Will my mortgage go up?
Assuming you are on a fixed rate, not immediately. But the cheapest mortgage deals for new borrowers are being pulled apace. Mortgage brokers advise those close to securing a loan to get it over the line as soon as possible.
