Economy

Bank of England hikes interest rates

Bank of England hikes interest rates”

The theory is that no interest rate rise might have pushed the inflation rate higher, which in turn could have eventually fed through to student loan rates.

"RBI's Monetary Policy Committee has chose to increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5% Consequently, the reverse repo rate under the LAF stands adjusted to 6.25% and marginal standing facility rate and Bank Rate to 6.75%", the apex bank said in a statement.

"But we expect the economy to regain some momentum next year following a soft Brexit outcome, enabling the MPC to raise Bank Rate twice in both 2019 and 2020, exceeding the glacial pace of tightening now priced-in by markets", says Samuel Tombs, Chief UK Economist with Pantheon Macroeconomics.

It also noted that households' inflation expectations have risen significantly in the last two rounds along with the expectations of manufacturing firms of a hardening of input prices.

While Repo rate is the rate at which the central bank lends money to the banks, the reverse repo rate is the rate at which banks lend money to the RBI.

"We think markets are right to anticipate that the MPC will wait until May 2019 to raise Bank Rate again".

But he predicts a quarter-point rise every six months until rates reach 1.5% in 2020.

Britain's central bank is expected to raise rates from 0.5% to 0.75%, taking the UK's base rate of interest to its highest level since March 2009.

"So on balance the Bank's decision looks sensible".

Analysts at Morgan Stanley offer detailed insights on what to expect at today's trio of key Bank of England (BOE) events, including the monetary policy statement, minutes of the meeting and quarterly inflation report (QIR).

Mixed signals on future action: We expect the MPC to estimate that the neutral rate in the United Kingdom at the moment is in the 2.5-2.75% range, slightly above Governor Carney's 2015 estimate.

With the policy rate increase expected to get transmitted with a lag, customers will have to brace themselves for much higher rates in the future.

Around two thirds of its mortgage customers are now on fixed-rate products and so will not see their rate change during their fixed-rate period.

And at 0.75%, rates would still be very low by historical standards, given that the base rate stood at more than 5% when the credit crisis and subsequent global financial crisis hit.

"They can expect a rise to their savings, albeit a small one".

"Make sure you keep an eye on which banks are offering the best interest rates as not all of their products will increase by the BoE's 25 basic points". Over the last two bi-monthly MPC review meetings; there has been a total of 50 bps increase in the repo rate.

The jobs market has continued to prove resilient, although wage growth has been weak in the latest readings, pointing to a mixed picture for the economy and consumer spending.

The Bank of England is set to hike interest rates for just the second time since the financial crisis.



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