Bank of England interest rate expectations (02/11/21)
by Shafiq Shabir
Head of Electronic Trading, Intertrader
While there is a general expectation that an interest rate rise will come this week following the Bank of England’s Monetary Policy Committee (MPC) meeting, there is still a real chance that any action will be postponed until at least next month. They might deem that the current economic environment does not need borrowing costs to increase just yet.
Primarily this is because the UK – like the rest of the world – is not yet out of the woods in terms of fully evaluating the impacts of the pandemic. As highlighted at last month’s meeting, global supply chain disruptions have been a key driver in the UK’s recent inflation, but are expected to be relatively short-lived. Britain’s furlough scheme also only ended last month, and the consequences have not yet been fully realised. Likewise, with consumer confidence dropping in the face of rising energy and tax bills, and coronavirus cases still at moderately high levels, altering interest rates now might prove a premature and potentially counterproductive measure.
Markets have been pricing in a November rate hike from the current historic low of 0.1% though. Setting itself the ‘urgent’ task of bringing inflation of close to 5% back to its 2% target level, any rise from the Bank of England would be compounded with inflationary pressures and the recent rise in National Insurance payments.
It is worth noting that such market pricing, which expects a hike by 15bp, has been met with little to no pushback.
Whatever the outcome on Thursday, it is highly unlikely to be unanimous. MPC members are seemingly split on the timeframe, but there will almost certainly be an increase soon. It is now just a case of ‘when’ and not ‘if’.
Published: 2 November 2021
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