The likelihood of a base rate increase has risen; as of last week, markets were pricing approximately a 50% probability that the Bank of England’s Monetary Policy Committee (MPC) will vote for a 0.25% interest rate rise in November. This would boost the base rate to 0.5%, and whilst this is only a small increase, the rate rise would be particularly significant as it would be the first time UK interest rates have risen for over a decade.
Mark Carney, Governor of the Bank of England and Chairman of the MPC, has also hinted that an interest rate rise is imminent. During a recent BBC interview, Carney stated: “We can see that in coming months if the economy continues on this track, it may be appropriate to raise interest rates.”
It’s impossible to predict an interest rate rise for sure—and it can also be difficult to wade through the rafts of newspaper headlines and gain a clear sense of what is likely to happen. We sat down with Emma McHugh, Economist at C. Hoare & Co., to get her insight.
Do you think we will see an interest rate rise in the next six months? How will C. Hoare & Co. react to this?
From the September minutes of the MPC meeting and subsequent comments from its members, we sense a change of mood at the Bank of England and anticipate some form of tightening in policy over the coming months.
This tightening could be a reduction of the Bank of England’s stock of bond purchases or raising the base rate. The resilience of the UK economy since June 2016 has caught the Bank of England off guard and with inflation expected to run above target in the near term, there are reasonable grounds for the Bank of England to reverse its measures brought in last August.
Emma McHugh is the Economist at C. Hoare & Co. In this capacity, Emma provides economic commentary for the bank, evaluates trends and provides forecasts.