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The Bank of England is widely expected to leave UK interest rates on hold today, at its latest monetary policy committee (MPC) meeting. But should it actually be cutting rates, to help the weak economy?
Experts in the City are pretty confident the BoE will leave base rate at 5.25% at noon, its highest level in 15 years, extending the pause which began in September. But the vote may not be unanimous, with several of the nine MPC policymakers expected to vote to increase rates further. Those hawkish members fear that even higher borrowing costs are needed to cool inflationary pressures.
The majority, though, seem likely to stick to the view that the BoE should maintain borrowing costs at the current elevated level for long enough to push inflation down.
Matthew Ryan, head of market strategy at global financial services firm Ebury, predicts a 6-3 split in favour of leaving rates on hold, saying: “Since the last meeting in September, indicators of economic activity have remained less than impressive, wage growth has eased and hawk Jon Cunliffe has left the committee, with his replacement, Sarah Breeden, appearing likely to side with the doves.
"This would suggest no closer than a 6-3 vote in favour of no change. The BoE will probably strike a cautious tone on the growth outlook, and downward revisions to the GDP forecasts for 2023 and 2024 are on the cards.
Other major central banks have already held borrowing costs in recent days – the ECB did so last week, and the Federal Reserve left policy unchanged last night.
The BoE’s problem is that inflation is running higher in the UK than other advanced economies, clocked at 6.7% in September. It should have fallen in October, but could still be higher than the eurozone, where it was just 2.9% in October. But even so, some economists think the Bank should be cutting borrowing costs.
Rightwing thinktank the Institute of Economic Affairs runs a shadow monetary policy committee, and it voted 7-2 to cut rates. This committee fears the Bank of England is at risk of over-correcting and slowing economic activities.
Trevor Williams, chair of the thinktank's committee and former chief economist at Lloyds Bank, said: “There is mounting evidence that the UK’s monetary policy is too tight and could lead to price deflation in a few years and potential recession in the interim. The Bank of England should act now by lowering interest rates.
"The Bank’s overly tight monetary stance is pushing mortgage lending down, companies are struggling to repay debt, insolvencies are rising, and households are withdrawing money to meet higher repayments.
"By underestimating the importance of the money supply, the Bank risks repeating the mistake that caused high inflation. It is essential for the Bank to ‘look through’ the current level of inflation and focus on where it could be in two years.”
We’ll find out the Bank’s view, along with its latest economic forecasts, at noon.
The agenda
• 9am GMT: Eurozone manufacturing PMI for October
• 9am BST: Norges Bank interest rate decision
• Noon GMT: Bank of England sets interest rates
• 12.30m GMT: Bank of England press conference
• 12.30pm GMT: US weekly jobless claims
We’ll be tracking all the main events throughout the day ... |
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