Bank is expected to increase interest rates today
THE Bank of England is expected to increase interest rates to their highest level for almost a decade today.
Members of nine-strong Monetary Policy Committee (MPC) are predicted to increase rates from
0.5 per cent to 0.75% in what would mark only the second rise since the financial crisis struck, following last November’s quarter point hike.
The move would see rates reach their highest level since March 2009, when they were slashed from 1% to the emergency low of 0.5% in an effort to contain the fall-out from the financial crisis.
Investec economist George Brown said he is “fairly confident” the Bank will move to raise rates and is pencilling in an 8-1 vote in favour, with Sir Jon Cunliffe the only dissenter.
Mr Brown believes the economy has performed in line with the Bank’s last forecasts in May, when it backed off from a widely anticipated hike to wait and see how the economy recovered after a weatherhit start to the year.
The Bank also edged a step closer to pressing the button in June when its chief economist Andy Haldane joined two fellow policymakers in calling for a rise.
Howard Young at the EY Item Club believes the vote may be less definitive, given that inflation figures recently came in lower than expected – unchanged at 2.4% in June, while wage growth has also been weak.
It has become an even closer call after survey figures yesterday signalled a weaker performance from the manufacturing sector in July, according to Mr Archer, but he said this is “unlikely to deter” the MPC from raising rates.
He said: “We believe that the odds still favour the Bank of England lifting interest rate from 0.50% to 0.75% on Thursday after the August MPC meeting – most likely following a split vote.”
He added: “With interest rates down at 0.50%, the Bank of England would clearly likely to gradually normalise monetary policy given that it is essentially an emergency low rate.”
The decision to raise rates would come as a blow to some borrowers on variable rate mortgages, but would offer relief to savers who have seen paltry returns on deposits since rates have languished since 2009.