{"id":13810,"date":"2017-11-03T09:32:19","date_gmt":"2017-11-03T09:32:19","guid":{"rendered":"http:\/\/www.bnreport.com\/uk-interest-rate-decision-looms\/"},"modified":"2017-11-03T09:32:40","modified_gmt":"2017-11-03T09:32:40","slug":"uk-interest-rate-decision-looms","status":"publish","type":"post","link":"https:\/\/www.bnreport.com\/en\/uk-interest-rate-decision-looms\/","title":{"rendered":"UK interest rate decision looms"},"content":{"rendered":"<\/p>\n

The Bank of England will deliver one of the most closely watched interest rate decisions since the financial crisis later on Thursday.<\/p>\n

Economists and investors are expecting the first increase in a decade.<\/p>\n

In September, the Monetary Policy Committee (MPC) laid the groundwork for an increase "over the coming months" if economic growth remained stable.<\/p>\n

If the Bank raises rates from the current 0.25%, it would represent the first increase since July 2007.<\/p>\n

Commercial banks use the Bank of England's base rate as a reference point for their accounts and loans.<\/p>\n

Higher rates are expected to hit the 3.7 million households with a standard variable rate (SVR) or tracker mortgage. However, they will also benefit a large share of the 45 million savers who are likely to enjoy higher returns from accounts that pay variable interest rates. <\/p>\n

Charities and business groups have warned the Bank against raising rates, which they claim will put a strain on homeowners and companies struggling to make ends meet.<\/p>\n

However, mortgage lender Nationwide has described the impact of a small rise in interest rates as "modest"<\/a> for borrowers whose repayments are linked to the base rate.<\/p>\n

Official data show more homeowners are fixing the interest rate charged on their mortgage than a decade ago.<\/p>\n

The total share of new mortgages taken out on a fixed rate was just under 88% in the second quarter of 2017, according to the Bank of England. This compares with 46% at the start of 2008.<\/p>\n

'Anaemic' growth<\/h2>\n

Financial markets believe there is more than a 90% chance that the Bank will increase rates to 0.5%, just over a year after reducing them to a new low of 0.25% in the wake of the Brexit vote.<\/p>\n

Not all economists favour a rise though. Danny Blanchflower, a former member of the MPC and now economics professor at Dartmouth college in the US, said he saw "nothing" in the recent economic data to justify higher interest rates.<\/p>\n

"We've seen an inflation jump due to a fall in the value of the pound. But that's a once-off jump that's going to drop off in the next few months. Real wages are falling. Retail sales are falling.<\/p>\n

"Growth in the UK is anaemic at best," Prof Blanchflower said.<\/p>\n

But Dame DeAnne Julius, also a former MPC member and chair of University College London, is "absolutely" in favour of a rate rise.<\/p>\n

"Although I'm sure that the fall in sterling has been part of the story, it's certainly not the whole story," she said.<\/p>\n

"The degree of slack in the economy\u2026 is down. Unemployment is at a 40-year low. Also the negative effects of having such low interest rates for such a long period of time are really showing up."<\/p>\n

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Media playback is unsupported on your device<\/p>\n<\/figure>\n

Solid growth<\/h2>\n

Official economic growth figures showed the UK economy expanded by 0.4% in the three months to the end of September<\/a> compared with the previous quarter. <\/p>\n

This is stronger than the 0.3% expansion expected by the Bank.<\/p>\n

In September, the MPC said that a "majority" of members believed that some withdrawal of stimulus would be appropriate if the economy continues to grow at a steady pace.<\/p>\n

A 0.4% increase in gross domestic product (GDP) may sound unspectacular. The average quarterly growth rate since 1993 has been about 0.6%.<\/p>\n

But weaker investment and productivity means the economy and living standards may never grow at the same pace as seen before the financial crisis.<\/p>\n

This means the Bank may have to raise rates to keep a lid on inflation, even if growth remains subdued.<\/p>\n

As Bank of England governor Mark Carney put it: "The speed limit, if you will, of the economy has slowed."<\/p>\n

In other words, this may be as good as it gets.<\/p>\n

Prices have been rising faster than pay in recent months, and this has put pressure on UK households.<\/p>\n

Inflation, as measured by the consumer prices index (CPI)<\/a>, stood at a five-year high of 3% in September. <\/p>\n

This is also above the Bank's estimate of 2.8%. Policymakers believe inflation will peak just above 3% in the coming months.<\/p>\n

Pay growth low<\/h2>\n

The UK's jobs-rich recovery has continued, with unemployment falling to a four-decade low of 4.3% in recent months.<\/p>\n

But pay growth has remained weak.<\/p>\n

Average total weekly earnings grew by 2.2% in the three months to August compared with the same period a year earlier, while the Bank of England's agents noted in September that pay deals had "clustered around 2% to 3%".<\/p>\n

In the decade before the financial crisis, earnings growth averaged 4.25%.<\/p>\n

However, there are tentative signs that pay could be picking up, particularly for the 82% of workers in the private sector.<\/p>\n

Whatever the Bank of England decides on Thursday, one thing is clear. Any rate rises will be "limited and gradual".<\/p>\n

Uncertainties remain on the horizon.<\/p>\n

The Bank's current forecasts are predicated on a smooth Brexit, and it is likely to stress that future changes to monetary policy are not on a pre-determined course and will be dependent on developments within the economy.<\/p>\n

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Original Article<\/a><\/p>\n

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<\/p>\n

BBC<\/a><\/h4>\n<\/p><\/div>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

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