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From 3h ago
07.18 GMT
Bank of England expected to raise interest rates
to 14-year high
Good
morning, and welcome to our rolling coverage of business, the financial markets
and the world economy.
Despite the
risk of a looming recession, the Bank of England is expected to raise UK
interest rates for the 10th time in a row today as it continues to battle
inflation.
Economists
predict the BoE will lift Bank Rate by another half a percent, up to 4%, the
highest since autumn 2008 – as this chart from December shows:
UK consumer
price inflation eased slightly to 10.7% in November, down from 11.1% in
October, offering hopes that price pressures may have peaked.
But last
month, the Bank of England’s chief economist warned that high rates of UK
inflation could persist for longer than expected.
Huw Pill
said:
“The
distinctive context that prevails in the UK – of higher natural gas prices with
a tight labour market, adverse labour supply developments and goods market
bottlenecks – creates the potential for inflation to prove more persistent.”
Those
concerns could spur policymakers on the Monetary Policy Committee to keep
tightening policy. All nine MPC members get a vote, and their decision is
released at noon.
Another
interest rate rise would push up borrowing costs for the approximately 2.2
million people on a variable rate mortgage. More than a million households must
renew their fixed-rate deals this year, and already face a jump in repayments.
Ipek
Ozkardeskaya, senior analyst at Swissquote Bank, explains:
In one hand,
the double-digit inflation continues taking a toll on the UK economy and on
people’s lives. According to the latest data, food inflation in Britain hit the
eye-watering level of 16.7% in the 4 weeks to January 22.
On the
other hand, the rising rates take a toll on the British housing market.
Yesterday,
Nationwide reported that house prices in the UK fell again in January, sliding
for the fifth month in a row.
The Bank
will also give its latest assessment of the UK economy. Three months ago, it
warned the UK faced a lengthy recession, but it could upgrade its outlook
today, as the market chaos following last September’s mini-budget has eased.
The BoE
isn’t the only central bank battling inflation, of course. The European Central
Bank sets its interest rates today too, and is also expected to raise borrowing
costs by 50 basis points, or half a percent.
Last night,
America’s Federal Reserve lifted its key rate by a mere quarter-point (25 basis
points), and signalled a slowdown in its tightening programme.
Fed chair
Jerome Powell said:
“We covered
a lot of ground, and the full effects of our rapid tightening so far are yet to
be felt. Even so, we have more work to do.”
But, Powell
also tried to dampen expectations that the Fed could unwind some of its hefty
interest rate increases, cautioning:
“If the
economy performs broadly in line with those expectations, it will not be
appropriate to cut rates this year.
Fed
announces smallest interest hike in a year as inflation ‘eases somewhat’
The agenda
7am GMT:
Germany’s trade balance for December
Noon GMT:
Bank of England releases interest rate decision, and publishes Monetary Policy
Report
12.30pm
GMT: Bank of England press conference
1.15pm GMT:
European Central Bank interest rate decision
1.30pm GMT:
US jobless claims data
1.45pm GMT:
European Central Bank press conference
2m ago
10.43 GMT
Borrowers will be hit hard if the Bank of England
raises interest rates again at noon today, says William Marsters, senior UK
sales trader at investment platform Saxo.
“Today the
Bank of England looks set to raise interest rates for the 10th time in a row,
expected to be up from 3.5% to 4%.
With
inflation currently at 10.5% the Bank has been stuck between a rock and a hard
place for a long time with little to no choice but to hike rates again with a
target of reducing inflation to as low as 2%.
This rise
in interest rates has hit borrowers hard and those with large mortgages or
credit card loans in particular will continue to feel the squeeze with the cost
of living already tightening any kind of consumer purchasing power. Some
homeowners have even decided to roll the dice and apply floating rates to their
mortgages, taking the pain now in the hope that inflation will soon reduce and
rates turn lower again later in the year.
The UK is
still likely to enter a recession in the coming months, something the BoE would
have had to factor into their decision, and in the long term this should see
consumer prices pressured, though many businesses will be negatively affected
with costs already proving difficult to manage.”
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