Bank of England will announce UK interest rates at noon, with economists expecting a hike to 3%
Interest rates likely to jump as markets await Bank of England decision
Craig Erlam, senior market analyst at OANDA, says the Bank of England has an unenviable task setting interest rates, given the disruption in Westminster:
The Bank of England will likely join the Fed in raising rates by 75bps later today.
The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty. In recent months the country has had three Prime Ministers, three very different economic agendas, and no budgets outlining them. Not ideal for a central bank that’s fighting double-digit inflation.
The Monetary Policy Committee’s vote is likely to be divided with the potential for a less aggressive 50 basis point hike instead. The size of the increase will signal how concerned Bank of England policymakers are about inflation versus a recession as it looks to curtail further price rises without inadvertently causing unnecessary economic pain.
An estimated two million borrowers on variable rate mortgages look set to face increased payments after today’s decision while around another two million are on fixed-term mortgages which need re-mortgaging, some at higher rates by the end of 2024.
Since the BoE’s last meeting in September, an awful lot has happened in the UK, including a mini-budget that triggered market turmoil, a temporary BoE intervention to buy longer-dated gilts, a policy reversal on most of that mini-budget, and then Liz Truss’ replacement as PM by Rishi Sunak. That volatility has been reflected in market pricing for today’s decision as well.
Straight after the last meeting, overnight index swaps were pricing in a 75bps hike, but at the height of the mini-budget turmoil they went as far as pricing in more than 200bps worth by today, including a decent chance of an intermeeting hike. However, as the situation has calmed down, pricing has returned to its original starting point of a 75bps hike again, which is what our UK economist is forecasting for today as well.
“Rising interest rates will mean families with already stretched budgets will be hit by higher mortgage payments.
“It will mean higher financing costs for businesses.
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