Bank of England expected to hold base rate at 15-year high as data signals ‘potential cracks’ in economy
The Bank of England is expected to hold interest rates tomorrow
GETTY
The Bank of England is expected to hold interest rates for a third consecutive time, as fresh data has pointed towards potential cracks in the economy.
The central bank had previously hiked interest rates 14 times in a row, reaching a 15-year high of 5.25 per cent in August this year, in a bid to bring down inflation.
Rate setters at the Bank of England held rates in September and November’s meetings after seeing an easing in the rate of inflation.
The upcoming meeting follows key economic data from the Office for National Statistics (ONS) this week, which also showed signs of cooling in the economy.
WATCH NOW: GB News' Liam Halligan reacts to inflation data released in November
The ONS today said UK gross domestic product (GDP) fell 0.3 per cent in October, as the manufacturing and construction sectors were hit by poor weather.
Yesterday, official statistics revealed wage growth had slowed at the fastest pace for two years.
The ONS said private sector regular earnings, excluding bonuses, rose by 7.3 per cent in the three months to October, down from 7.8 per cent in the previous three months, which experts suggest points towards a weakening in the labour market.
As a result, economists have increased their expectations for interest rate cuts next year.
Financial markets had previously priced in 0.75 percentage points of interest rate cuts in 2024.
On Wednesday, they were expecting a one percentage point drop, which would see interest rates drop to 4.25 per cent by the end of 2024.
However, experts are still predicting the base rate to remain steady tomorrow and in the early months of the New Year.
Martin Beck, chief economic advisor to the EY Item Club, said little has changed since the previous rate decisions – held in September and November – to bring about a different result.
He said: “December’s MPC meeting will almost certainly prove the third in succession to deliver no change in interest rates.
“There’s been nothing in the way of significant economic surprises over the last four weeks and inflation and pay growth have slowed (the former by more than the Bank of England expected).”
The central bank has remained cautious about rate cuts despite signs of cooling inflation and subdued economic activity in recent data.
The ONS will release the Consumer Prices Index (CPI) inflation data for the year to November 2023 on Wednesday 20.
The Bank of England’s Governor Andrew Bailey and other members of the MPC have signalled rates will be held at the current level for some time.
Speaking at Parliament’s Treasury Committee last month, Mr Bailey suggested the threat of UK inflation is being underestimated and said the Bank is still focused on concerns over persistent inflation.
LATEST DEVELOPMENTS:
The Bank of England made 14 consecutive hikes in less than two years to the base rate to try to ease inflation
GETTY
He indicated that inflation in the services sector, where most Britons spend their money, is likely to remain at around six per cent through the start of 2024.
James Smith, developed markets economist at ING, said he expects the central bank to reiterate this message.
He said: “Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that.
“Expect policymakers to reiterate that rates need to stay restrictive for some time.
“We only get a statement and minutes on Thursday, and no press conference or forecasts, so the opportunity to shift the messaging is fairly limited.”
Nearly one million people could see their mortgage repayments soar by more than £500 a month by the end of 2026, the Bank of England has warned, due to pressure from higher interest rates.
You may like
