Cascade Commentary


Bank of England set to raise Interest Rates in November meeting

The Bank of England are expected to announce the first interest rate increase since July 2007 following the conclusion of the November meeting of the Monetary Policy Committee (MPC) tomorrow.

Economic growth forecasts in the aftermath of the vote to leave the European Union had signalled a weakening of the UK economy's growth rate to 0.73%, which led the MPC to decrease the official bank rate from its historic low of 0.50% to 0.25%. The actual figure however has been much better with the UK economy growing 1.73%, higher than the predicted 0.73%. This has led to disagreement amongst MPC committee members over the best course of action but in September's minutes, the MPC shocked the market by indicating that a rate rise could be expected in the "coming months" in attempts to restrain inflation as sterling has depreciated during the Brexit negotiations. 

While disagreement amongst MPC committee members has been reported in the meeting's official minutes as the year has progressed, most of the market has felt that an interest rate increase would not occur until late 2018 or indeed early 2019. Since September's announcement however, it is now widely accepted that the emergency rate cut of August 2016 will be reversed taking interest rates back to 0.50%. The speed at which the market's expectations have changed shows the uncertainty over the best course of action and indeed the power of the communication alone from the Bank of England - supportive of their recent appointment of Gareth Ramsey as Head of Communications. Should the MPC not raise interest rates tomorrow, then a shock will undoubtedly be felt in the financial market.

What comes next will also need answering as many will be wanting to know the MPC's view over further interest rate increases during the Brexit process. The MPC will surely keep its options open but many would like a steer as to whether further increases should be expected in the short-, medium- or long-term. 

We will be closely monitoring tomorrow's announcement and will let you know the MPC's decision following the publication of the meeting's minutes around noon. Should you require any assistance in the meantime, do contact a member of our client support team and we'll be happy to assist. 

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