Base rate set to remain at a record low

THE Bank of England is set to temper expectations of a hike in its base rate this week when it publishes the minutes of its latest Monetary Policy Committee (MPC) meeting.

Official data last week showed that inflation, as measured by the consumer price index, rose by a record 1.2 points last month to 3.2 per cent, its highest level in nearly a decade. As a result, many in the market are betting the Bank’s MPC will raise its base rate to tame inflation.

However economists believe that although the MPC will maintain a hawkish tone when it publishes the minutes of its latest meeting to decide both interest rates and quantitative easing, it will keep the base rate at the record low of 0.1 per cent.

They add the MPC will be reluctant to raise rates at a time when the economy is weakening, as higher rates would put further pressure on the recovery.

Capital Economics senior UK economist Ruth Gregory said: “A rate rise anytime soon would probably prove counterproductive. By weakening demand, the Bank could jeopardise the recovery.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, pointed to the fact that retail sales volumes fell by more than expected in August as a reason why the Bank is likely to delay raising its base rate.

“August’s retail sales data brings more evidence the recovery in consumers’ spending lost momentum in the third quarter and it should cause markets to doubt whether the MPC will be in a position to hike the Bank Rate as soon as February,” he said.