Bank of England set to hike rate on Brexit effects

LONDON: The Bank of England, on guard against soaring Brexit-fuelled inflation, is on the precipice of lifting its key interest rate Thursday for the first time since 2007, according to analysts.

Policymakers are expected to increase the central bank’s main interest rate by a quarter-point to 0.50 per cent from its current record low after a two-day gathering.

The BoE had hacked back borrowing costs to ultra-low levels during the global financial crisis and beyond – and is now mulling a gradual path of monetary policy tightening to combat spiking inflation.

“This will be a very gradual process of rate normalisation to discourage excess credit growth for consumers, underpin sterling and send a signal that rates are too low as inflation recovers,” Manulife equities head David Hussey told AFP.

A quarter-point increase would reverse an emergency rate cut that was implemented in August 2016 following the shock Brexit referendum.

“The Bank of England looks set to pull the trigger on the first rise in interest rates since 2007,” said CMC Markets analyst Michael Hewson.

The bank’s nine-strong monetary policy committee had hinted at the last meeting that a hike was around the corner as the weak pound ramps up the cost of goods imported into Britain, and therefore consumer prices.

The MPC panel had voted 7-2 to freeze borrowing costs in September, with two members urging a quarter-point increase to address spiking consumer price levels.

Official data subsequently showed Britain’s annual inflation rate hit three per cent in September – the highest level for more than five years.

That news has tipped the scales in favour of a November rate hike, as the BoE seeks to keep inflation near a two-per cent target.

“With inflation set to rise even further... the Bank of England needs to get its act together and concentrate on its mandate and keep a lid on inflation expectations,” said Hewson.

“If that means it needs to raise rates to do so then that is what it should do.

“Financial markets have already priced in a rate rise, which means the Bank of England needs to deliver this week, or its already tattered credibility will get shot to pieces,” he added.

Higher interest rates boost savers who receive a higher return, while increasing repayments for borrowers. — AFP