There appears to be a growing belief that November is now the time the Bank will raise the rate, personally I would expect that there will be some form of spanner in the works that causes the MPC to revise such expectations.
Barclays had said on Friday it expected the BoE to hike by 25 bps in November, having previously also forecast no change.
“We now expect a 25bp rise in that meeting, followed by another in May 2018, taking the bank rate to 0.75 per cent”. Noting that there is “scope for a stimulus reduction in the coming months” and “that a rate hike may be needed within months” can only move expectations in one direction and while the Bank is not one to do anything for credibility’s sake, not doing something “in the coming months” would be seen to be crying ‘WOLF!’. It would be the first hike in United Kingdom rates in a decade.
“The same phrase was then used by Mark Carney in an interview shortly after and by Jan Vlieghe – a former dove on the committee – in his speech at the Society for Business Economists (SBE) a day later”.
But despite investor excitement over the prospect of a pending interest rates hike, HSBC said that the move could ultimately be “premature”, forcing the Bank to backtrack and cut rates once again. It now sees sterling at 89 pence per euro by the end of 2017 EURGBP=D3, and at 95 pence by end-2018.
The analysts added that their view on the United Kingdom economic outlook is unchanged.
“Importantly, this change is not based on a change in our macro forecast: “no-change” remains the only policy action consistent with our growth and inflation outlook”, they wrote. It is our estimation that inflation will be a lot less of a problem in 2018 than it has been in 2017 however, and therefore the impetus to increase borrowing costs should be limited.
In the last ten years since the Bank has been presiding over these historic lows there has been numerous periods where it was believed interest rates would rise in the future.
Sterling has risen on the back of expectations the Bank of England will raise interest rates.
Longer term we are relying on a poor economy and poorer political foundations to undermine sterling strength past any incremental increase in the Bank of England’s base rate.
A spokesman for Lloyds Banking Group said its economics team should update its view on interest rates in the next few days.
Sterling recorded its strongest week in more than eight years last week, with an nearly 3% climb against the dollar to above $1,36, after the BoE said rates were likely to rise in the “coming months”.
The BoE’s next announcement on monetary policy is scheduled for November 2.