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The Bank of England could make a little piece of history today, by raising UK borrowing costs by the highest amount since Gordon Brown gave it control of interest rates 25 years ago.
If so, it would be the first 50bp rise since 1995, 27 years ago, taking interest rates to their highest since December 2008.
Hiking borrowing costs sharply could push the UK closer to recession.
At a speech at Mansion House in London, Bailey declared:
The MPC has already raised UK interest rates by 0.25 percentage points five times this year, and a Reuters poll this week found that more than 70% of 65 economists expected a half-point increase today.
There are already signs the UK economy is starting to cool, says Neiss, adding:
There is still a lot of uncertainty around how the recent energy price and inflation shocks will impact economic activity, as well as the cumulative impact of rate rises by the BoE since last December, as these will take some time to feed through.
Good morning, and welcome to our rolling coverage of business, the world economy and the financial markets.
The Bank of England could make a little piece of history today, by raising UK borrowing costs by the highest amount since Gordon Brown gave it control of interest rates 25 years ago.The Bank sets interest rates at noon, and many (but not all) City economists predict that its policymakers will plump for a 50 basis point rise. That would lift Bank Rate to 1.75%, up from 1.25%.
If so, it would be the first 50bp rise since 1995, 27 years ago, taking interest rates to their highest since December 2008.
Hiking borrowing costs sharply could push the UK closer to recession. However, the Bank’s Monetary Policy Committee could take the plunge in an attempt to squell inflation – now at a 40-year high of 9.4%, far far above its 2% target.
Governor Andrew Bailey set the scene last month, telling a City audience that the Bank could abandon its policy of increasing rates in quarter-point steps.
At a speech at Mansion House in London, Bailey declared:
The MPC has already raised UK interest rates by 0.25 percentage points five times this year, and a Reuters poll this week found that more than 70% of 65 economists expected a half-point increase today.Katharine Neiss, chief European economist at PGIM Fixed Income, says the BoE may use today’s meeting to put through one more final, substantive rate hike before the economy starts to soften materially.
There are already signs the UK economy is starting to cool, says Neiss, adding:
There is still a lot of uncertainty around how the recent energy price and inflation shocks will impact economic activity, as well as the cumulative impact of rate rises by the BoE since last December, as these will take some time to feed through. There is broad agreement that the economy is set to cool further, but what remains an open question is by how much, and this is going to determine the path of policy going forward.It’s already been a summer of hefty rate hikes, with the European Central Bank raising its benchmark rate by 50 basis points last month, and the US Federal Reserve hiking by 75 basis points in both June and July.A winter of misery is approaching, with inflation heading into double-digits soon.Yesterday, the Resolution Foundation thinktank predicted the UK’s annual inflation rate could hit 15% at the start of 2023, due to further sharp increases in energy prices.That would intensify the squeeze on households, particularly poorer ones, who need more help from the government to get through the coming months.Resolution’s Jack Leslie warned that the jump in gas prices since the Ukraine war began meane UK energy bills could hit £3,600 early in 2023.The Bank will release its own economic forecasts at noon, and are expected to show inflation heading higher than it expected three months ago.
