The Bank of England Decides On Interest Rates

On Thursday 8th February 2018, the Monetary Policy Committee (MPC) of the Bank of England (BoE) will meet to decide on interest rates. This is going to be the first MPC meeting in 2018. After the meeting, the BoE is expected to publish the meeting’s minutes and its quarterly inflation report, which is a detailed economic analysis based on which the MPC is taking its decisions on interest rates.

The BoE’s benchmark interest rate currently stands at 0.5%. In the last BoE meeting that took place on Thursday 14th December 2017, the MPC had decided to keep the rate on hold. The last time that the UK’s central bank announced an interest rate hike was after its scheduled meeting on Thursday November 2nd 2017. In that meeting, seven out of nine MPC members voted in favour of raising borrowing costs. It should be noted that the BoE’s interest rate hike in November 2017 was the first in the last ten years. The BoE’s benchmark interest rate was increased by 0.25% and reached 0.5%, thus reversing the reduction that the MPC had decided on Thursday 4th August 2016, right after the Brexit referendum. The purpose of the interest rate cut, at that time, was to protect the British economy from implications that a post-Brexit recession could create.

A Bloomberg survey among economists showed that the majority of economists expect that all 9 MPC members will vote to keep the rate on hold. However, another report by Bloomberg Economics predicts that two members will vote in favour of raising borrowing costs with Ian McCafferty and Michael Saunders being the most likely to dissent. In recent months, and especially after November’s 2017 interest rate hike, economists have warned against increasing rates because of rising inflation, weak wage growth and the uncertainty that derives from Brexit negotiations.

The latest report by the Office for National Statistics (ONS) published in January 2018 showed that the UK’s economy grew by 0.5% in the fourth quarter (Q4) of 2017, while the participation rate and wage growth beat analysts’ expectations. During the previous week, the Governor of the Bank of England, Mark Carney, said that the central bank was increasingly able to focus on meeting its inflation target, hinting that productivity growth may accelerate.

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