Bank of England Set to Raise Interest Rates for the Last Time
The Bank of England is expected to raise interest rates by 25 basis points to 5.5% on Thursday, the highest level since 2007.
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This increase comes after 14 consecutive rate hikes since December 2021, as the Bank of England sought to curb inflation, which hit 9.1% in May.
However, the British economy is now facing increasing headwinds, with experts predicting that the country will enter a recession later this year.
The sharp rise in interest rates has led to higher borrowing costs for businesses and individuals,
which has slowed economic activity.
UK GDP fell 0.3% month-on-month in July/August, the biggest drop since 2020.
Unemployment also rose to 3.9% in August, the highest level since 2014.
Against this economic backdrop, the Bank of England is expected to pause rate hikes after this week.
Jack Seong, chief economist at Barclays UK, said: “While we expect the committee to coalesce around a 25bp hike, the finely balanced nature of the turn-in-cycle suggests we think there will be dissent from both sides.”
He added that economic data released ahead of the Bank’s Monetary Policy Committee meeting on Thursday could influence the bank’s decision.
August inflation data is due out on Wednesday, which is expected to remain high.
Benjamin Nabarro, chief UK economist at City, said: “Man’s explicit opposition to a pause,
and the implied rebuke to the majority view on the MPC, is, in our view,
a sign that there is an internal debate moving against it.
As such, a pause, we believe, is part of the discussion.”
He explained that the Bank of England may announce plans to pause rate hikes in early next year.
Bank of England Set to Raise Interest Rates for the Last Time