Place your bets for the Brexit rate hike
LONDON: To hear some economists talk, the Bank of England is about to make a big mistake – raise interest rates just as the economy heads into what could be a major storm.
If all goes as scripted, the bank will hike borrowing costs in the coming week for the first time in more than 10 years. But is the country really ready?
The consensus is for rise to 0.5 per cent from 0.25 per cent.
That 0.25 per cent was where the BoE put Bank Rate just over a year ago, shortly after British voters elected to leave the European Union.
And there’s the rub: the uncertainty the vote triggered is still there.
A Reuters poll published in the past week showed more than 70 per cent of economists believe now is not the time to raise rates – though slightly more than that said it would happen anyway.
BoE Governor Mark Carney has made it clear a hike is in the offing, if not specifically saying at this coming meeting.
His concern is that low unemployment means Britain’s economy has little spare capacity and, accordingly, faces upward inflation pressure.
Added to that are moves by other major central banks to rein in loose monetary policy, which could also push inflation higher by weakening the pound further.
The US Federal Reserve has raised rates four times since late 2015 and is expected to do so again.
The European Central Bank is cutting back on its bond buying, albeit gently.
So the BoE needs to concern itself with a pressured pound and high employment driving up inflation that, at 3 per cent, is already well above target and the highest in the Group of Seven industrialised nations.
But ranged against that is huge political and economic uncertainty over how Britain’s withdrawal from the EU will play out. — Reuters