How High Will The Bank Of England Raise Rates?

The Monetary Policy Committee has changed the date of the meeting from 15 to 22 September to respect the death of Queen Elizabeth II. On Wednesday, the eyes of the market will be on the UK. Experts expect the Bank of England to follow the decisions of other world banks and also this time raise rates.

More about rate in United Kingdom

The Monetary Policy Committee (MPC) changes the base rate to meet government targets to keep inflation low and stable. Inflation has been on the rise in 2022. That is why the base rate has also been gradually increasing. The rate was cut to a record low of 0.5% following the financial crisis of 2008/9. It stayed at the same level for years before the MPC cut it to a new low of 0.25% in August 2016 after the Brexit vote. It was 0.75% from August 2018 to March 2020 when it was cut to 0.25% because of coronavirus.The base rate was then cut again to 0.1% on 19 March 2020, raised to 0.25% on 16 December 2021, and raised to 0.50% on 3 February 2022.

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Source: bankofengland.co.uk

The Monetary Policy Committee (MPC) meets around every 6 weeks to discuss about base rate. The next meetings are on 22 September 2022 after it was postponed by a week due to the death of Queen Elizabeth.

What to expect?

Experts are suggesting that the base rate could increase to as much as 3% by the end of the year. No one knows exactly when the Bank of England base rate will go up. Sometimes there are "signs" that the base rate could go up in the future.

One way the Bank of England tries to control inflation is by increasing the cost of loans. If it raises the base rate, interest rates on credit cards, loans and mortgages usually increase by a similar amount. Interest rates are likely to rise in the coming months in order to keep inflation low, according to the latest guidance from the Bank of England. Interest rates have been at their lowest in the last few years, but are starting to rise.

The MPC has 9 members and decisions are made by vote. At the last meeting, the MPC voted by a majority of 8-1 to raise the Banking Rate by 0.5 percentage point, to 1.75%. One member preferred to raise the bank rate by 0.25 percentage points, to 1.5%.

Watching the latest developments, experts suggest that again the MPC will make a decision to raise rates. Risks surrounding the MPC projection, also from external and domestic factors, are currently exceptionally high. Recent reports have shown a worsening of the British economy. GDP has slowed down significantly. Consumer price index (CPI) inflation unexpectedly fell to 9.9% in the 12 months to August from 10.1% the month before. Fuel prices were the largest contributor to the downward move while food costs were the biggest driver of inflation last month. But core prices, which exclude volatile items like energy and food, ticked up to 6.3% from 6.2%, suggesting price rises are firmly embedded across the economy.

Economists had been predicting that the UK's central bank would raise rates to 2.25% - the highest level since December 2008. Experts predict that growth and 75 bp is also possible.

Last month, the Bank raised interest rates by the highest margin in 27 years in an attempt to keep soaring prices under control. It also predicted that the UK economy would fall into recession later this year. Higher interest rates can make borrowing more expensive, meaning people have less money to spend and prices will stop rising as quickly.

Source: bankofengland.co.uk