Bank of England, Federal Reserve and ECB expected to keep interest rates on hold this week
The Bank of England will likely hold interest rates for a third time in a row when it meets on Thursday, experts have predicted.
Governor Andrew Bailey has repeatedly stressed in recent weeks that it is still too soon to start thinking about rate cuts even though inflation has started to come down.
The consumer price index fell to 4.6 per cent in October – the largest monthly drop in inflation since the early 1990s, reflecting much lower energy prices. This figure was down from 6.7 per cent in September.
Core inflation, which excludes volatile components such as food and energy, also came in 0.1 per cent below expectations at 5.7 per cent.
Julian Jessop, economics fellow at the Institute of Economic Affairs, told CityAM that the Bank’s Monetary Policy Commitee (MPC) would “likely stick to its line that inflation is still too high and that the risks remain on the upside” at its final meeting of the year.
He added: “Rightly or wrongly, the MPC remains worried about pay pressures, and the large increases in the National Living Wage will not have helped here.”
AJ Bell analysts Russ Mould and Danni Hewson said the Bank was expected to remain in “wait-and-see mode” and leave the bank rate at 5.25 per cent.
“The outlook statements and how the balance of votes fall may therefore be more informative than the headlines,” they added.
Michael Hewson, chief market analyst at CMC Markets, emphasised that Threadneedle Street’s switch to a “Table Mountain” approach, with higher for longer rates being its “preferred messaging”, looks set to stay for now.
This week’s rate decision will also be accompanied by the release of two other sets of data indicating the health of the UK economy.
Unemployment and wages data will be released on Tuesday, followed by a monthly GDP estimate for October on Wednesday.
Hewson said wage growth was the Bank of England’s “biggest concern”. It currently sits at 7.9 per cent and “appears to be behind some of the dissent on the MPC amongst those who still want higher rates”, he added.
The West’s two other major central banks, the US Federal Reserve and European Central Bank, are also poised to leave rates on hold on Wednesday and Thursday respectively.
Markets have already priced in interest rate cuts for next year, with investors betting that inflation will keep cooling and high borrowing costs will dampen economic growth.