Bank expected to put further interest rate rises on hold – but inflation figures could come under scrutiny
Interest rates are set to hold steady after the first hike in ten years last month.
The Bank of England’s monetary policy committee (MPC) is expected to vote unanimously to leave rates unchanged after November’s rise from 0.25% to 0.5%.
But minutes from the MPC meeting alongside the noon decision will be scrutinised for clues on whether the Bank thinks inflation will continue its upward surge, after hitting a near-six year high of 3.1% in November.
After official data on Tuesday revealed higher-than-expected inflation figures, Bank governor Mark Carney will now have to write a letter to chancellor Philip Hammond outlining the reasons for the rapid rise, which is due to be published in February.
There is hope that inflation will begin to ease back after November as the impact of the pound’s plunge since the Brexit vote begins to pass, which would come as welcome respite from this year’s squeeze on household finances.
If inflation has further to rise, this could put pressure on the Bank’s plan for very gradual and moderate rate rises over the next three years and leave doubt over speculation last month’s hike was a “one and done” move.
Economist Allan Monks at JP Morgan said: “Inflation appears set to run above the BoE’s forecast following, which is likely to prompt the BoE to upgrade its near term forecast in February.
“This backdrop may further test the MPC’s tolerance of above target inflation, but we see this as an issue the BoE will respond to next year rather than at this week’s meeting.”
The Bank of England voted 7-2 to increase rates in November as it sought to cool surging inflation.
It was widely expected after repeated hints from Mr Carney and other key rate-setters, while the Bank also said two more rate hikes were likely over the next three years to return inflation back to its 2% target, which could see rates hit 1% by the end of 2020.
But many experts said they believed rates will remain at 0.5% for at least another year.