Will the Bank of England Raise Interest Rates?
The Governor of the Bank of England, Mark Carney, is inching towards an interest rate hike. This would be the first time in over 10 years that the BOE has raised interest rates. Currently, the Bank Rate in the UK is 0.25% – a historic low. What this means for UK homeowners is that a typical £200,000 mortgage will increase by approximately £300 per annum. The decision-makers sit on the Monetary Policy Committee (MPC), and the 9 members will decide whether the UK inflation rate is at a manageable level or not.
When Mark Carney joined the BOE in 2013, he came with tremendous experience, as a former Goldman Sachs banker and Governor of the Bank of Canada. Carney holds UK, Irish, and Canadian citizenship. Carney has garnered mixed reviews as Governor of the Bank of England, given that he keeps vacillating on interest rate policy. In 2016, he adopted quantitative easing policies to help the UK economy deal with the pressures of a Brexit, and now he is warning of monetary tightening by way of interest rate hikes to deal with runaway inflation.
While many perceive Carney as dovish based on his history, he has adopted a hawkish stance on UK monetary policy matters. On October 17, 2017, Carney was quoted as saying, ‘… The judgement of the majority of the Monetary Policy Committee is some raising of interest rates in the coming months may be appropriate…’ The deputy governor of the Bank of England, Mr. Broadbent is neither hawkish nor dovish, and his vote remains uncertain ahead of the upcoming November decision by the MPC. The chief economist of the Bank of England, Mr. Andrew Haldane is rather hawkish, and he believes that increased interest rates would get the UK economy back on track. The split between hawks and doves is evenly matched, making the upcoming interest rate decision by the MPC a little difficult to evaluate.
What to Expect from the Sterling this Week?
The GBP/USD and EUR/GBP pair have been biased towards sterling in recent days. Currently, the cable is trading at 1.32, while the EURGBP pair is trading at 0.8813. Both currency pairs indicate an appreciation of the sterling. Over the course of the past several days, the prospect of a rate hike has buoyed sentiment in favour of GBP. Further, the likelihood of the European Central Bank (ECB) raising rates has diminished as frictions over Spain and Catalonia continue. On Thursday at 12 noon, the BOE will make its decision vis-à-vis interest rates. This will be one of the most important monetary policy decisions in recent years for the GBP. A rate hike will boost demand for the sterling, and a delay will likely send it to lower levels.
The most important barometer of the cable remains the UKs interest rate decision, with Reuters pollsters indicating an 84% likelihood of rates rising on Thursday, 2 November 2017. On Tuesday, 31 October 2017, the GDP figures for the Eurozone and inflation figures will be announced. In the US, there are several factors that could impact the value of the USD, notably the federal indictment from the special prosecutor on the Russia scandal, proposed tax changes by the Trump administration, and any other geopolitical shenanigans that may be going on in the Trump administration. It remains to be seen whether former Trump campaign chairman Paul Manafort and an associate of his, Rick Gates will be found guilty of the charges leveled against them by the special counsel’s office. If Trump is somehow implicated in the scandals, it could prove devastating to his presidency.
Do you believe that the Bank of England will raise interest rates on Thursday, 2 November 2017? Do you welcome a rate hike? What effects will it have on your personal finances, mortgage repayments, and credit card bills?
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About Brett Chatz
Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.