UK Interest Rates

Expectations that UK interest rates will rise in May could be overblown, the governor of the Bank of England has indicated.

 

Recent economic data has come in softer than what was expected. Investors and City economists are widely predicting that the Bank’s monetary policy committee will raise interest rates from 0.5% to 0.75% at its next meeting in May. However, more data will be considered when Office for National Statistics publishes first-quarter UK growth figures. Also, the Brexit effect has to be taken to be taken into account. (https://www.theguardian.com/business/2018/apr/19/uk-interest-rates-bank-mark-carney)

 

This is a diametrically opposing view from just a month ago, when the Bank of England’s vote hinted at an interest rate rise in May. Two members of the Bank’s nine-member Monetary Policy Committee – Ian McCafferty and Michael Saunders – backed an increase in rates to 0.75%. (http://www.bbc.com/news/business-43501684)

 

This is possibly related to the UK inflation that unexpectedly fell last month to its lowest level in a year, raising questions over whether the Bank of England will raise interest rates next month. In the latest sign of the waning impact of the Brexit vote on household finances, the consumer price index (CPI) dropped to 2.5% in March, according to the Office for National Statistics. Economists had expected the annual rate of growth in prices to remain unchanged at 2.7%. (https://www.theguardian.com/business/2018/apr/18/uk-inflation-falls-to-25-its-lowest-level-for-a-year)

 

The figure below shows the UK interest rates over the last 18 years.

Screen Shot 2018-04-21 at 7.51.53 PM

 

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