The Bank of England is today expected to raise interest rates to their highest level since 2009, as the central bank looks to tackle soaring inflation, while not exacerbating the UK economic slowdown.
Mortgage holders, house hunters and savers will be affected by the Bank of England’s expected decision to increase the rate from 0.75% to 1%.
Many financial analysts were predicting that the Bank of England’s Monetary Policy Committee would raise rates by half a percentage point today. However, many have shown signs of revising their calculations down in recent days, with most economists now predicting a 0.25% rise in light of the slowing UK economy.
The consensus among economists is that the MPC will decide to act cautiously as UK households are squeezed by inflation, leading to lower demand and slower economic growth.
“Our view is that the Bank of England is having to thread the eye of a needle when it comes to tackling the current inflation surge such that it doesn’t induce a recession, meaning that relevant caution is required,” Simon Harvey, head of FX analysis at Monex Europe, said.
“Therefore, we don’t think the BoE will conduct a 50bp hike at any of its remaining meetings this year unless there is substantial evidence showing wage growth is responding to rising price pressures,” he added.
There are clear indications that inflation is starting to adversely affect economic activity. UK retail sales data for March showed volumes dropped by a more than expected 1.4%.
Growth in gross domestic product slowed to just 0.1% in February, from 0.8% a month earlier.
Chris Hare, economist at HSBC, commented: “There is a growing argument that the energy shock driven inflation of today — to the extent that it squeezes on real incomes — means lower inflation tomorrow.”