To Hike or Not To Hike?

August 2, 2018

Today is the day of the Bank of England’s Monetary Policy Committee (MPC) meeting, chaired by the Governor of the Bank of England, Mark Carney. The meeting will result in the policymakers revealing their decisions on what level interest rates should be.

The strength of the UK economy remains uncertain due to looming Brexit decisions and global trade disputes. Despite this, 85% of the market believes that voting will result in a hike to the UK base rate of 0.25% (from 0.50% to 0.75%) when the MPC meets later this morning.

The general consensus predicts a 7-2 split between the 9 members of the Committee in favour of the increase, which would see the first time the UK base rate has risen above 0.50% since 2009. Carney and his team have the unenviable task of deciding whether the economy is recovering from the slow start to the year, or whether the Brexit negotiations and trade disputes are still posing too significant a risk.

Erring on the side of caution are likely to be Jon Cunliffe and Dave Ramsden, dovishly voting to hold, while the remaining members take a more optimistic stance and vote for a hike in the hopes of nudging the UK inflation rate down from its current level of 2.4%, towards the central bank’s target rate of 2%.

Amidst market commentators there are, of course, skeptics who believe that should the vote go this way, the increase could significantly impact economic recovery and may be reversed within a matter of months.

The outcome, minutes and inflation report will be published at 12.00pm today! Watch this space….

Disclaimer: The views thoughts and opinions expressed within this article are those of the author, and not those of any company within the Capital International Group (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security.

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