How likely is it that the Bank of England will raise interest rates next week?

in busy •  3 months ago

Some commentators simply refuse to believe that the Bank of England will pull the trigger and raise interest rates next week from 0.5% to 0.75%. Never mind that the economy is humming along and unemployment is at a 40 year low. What about Brexit, they ask.

On the face of it, the Bank of England will be displaying extraordinary chutzpah to raise interest rates with eight months to go to Brexit Day, no deal in sight and an increasing likelihood that the UK will simply crash out of the EU with no transition.

However, if the Bank assesses that we're already in a No Deal economy, with businesses triggering their contingency plans, and that this is doing the economy no harm, they will go ahead. If Britain was going to panic about it's future, it would have done it by now. Instead people have been remarkably sensible. They've carried on as normal, while deferring big purchases like new cars and phones. This helps the economy as the debt load isn't increasing and neither are imports.

Gently raising rates to 0.75% will help that process along as Brexit day approaches.

In addition, the markets widely expect the pound to drift downwards as no deal increases in likelihood. But unlike after the referendum this is entirely forseeable, which means there won't be any shock, and an interest rate rise leans in the opposite direction.

For these reasons I fully expect the BoE to raise rates next week. This stands in sharp contrast with the eurozone, where they are still on life support despite the delusion that being part of the EU gives syou strength.

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