The Bank of England is widely expected to raise interest rates at midday, in what would be its first increase in more than three years. A quarter-point rise would take Bank Rate from 3.75% to 4%.
Policymakers are expected to act as inflation remains above the Bank’s target, aiming to limit the risk that higher energy costs feed through to prices across the economy. The Bank last raised borrowing costs in August 2023, when the rate reached 5.25%.
Economic indicators have also strengthened the case for a rise, according to Peder Beck-Friis, an economist at PIMCO. He pointed to resilient growth, a stabilising labour market and a slight increase in core inflation, while noting that the economy does not appear overheated and that energy costs have so far had a modest effect on core inflation. He said markets had fully priced in a move to 4%.
Andrew Wishard, senior UK economist at Berenberg, expects an 8-1 vote in favour, with Alan Taylor dissenting. He said stronger growth and tentative labour-market stabilisation support a rate increase, though its effect on economic activity is likely to be modest.
Oil prices have eased this week, with Brent crude falling below $100 a barrel and trading at around $95 in the morning. Kyle Rodda, senior financial market analyst at Capital.com, said markets were removing some of the geopolitical risk premium built into oil prices before the US midterm elections. He cautioned that peace talks remained only rhetoric and that uncertainty over US foreign policy persisted.
Sources: The Guardian Business.