Policymakers at the Bank of England are widely expected to keep borrowing costs on hold this week, with some observers believing a rate hike may not happen until the end of next year.
The Bank’s nine-member monetary policy committee (MPC) voted to keep interest rates frozen at 0.5 per cent at their last meeting on 10 September, with only one policymaker – Ian McCafferty – pushing for a quarter-point increase.
With interest rates having been frozen since March 2009, savers would relish the opportunity to earn better returns, but for those businesses and consumers that have become accustomed to low borrowing costs, an upward move by the MPC would be seen as an unsettling prospect.
Bank governor Mark Carney said in July that a decision over starting a slow and gradual increase in borrowing costs “will likely come into sharper relief around the turn of this year”.
But last month chief economist Andy Haldane argued that the central bank may need to cut interest rates as its next move rather than raising them. Haldane said ultra-low inflation and slowing growth meant there may be a need to “loosen” monetary policy.
In contrast, external MPC member Martin Weale said last month that “it seems likely to me that the bank rate will need to rise relatively soon”.
The Bank’s policymakers are due to announce their decision on Thursday, and analysts at Barclays said: “We believe the tone of the MPC could sound hawkish to some, as the MPC will want to lean against recent market expectations of it pushing back the date of the first hike into 2017. In particular, the MPC will insist that global woes will not derail the BoE’s strategy given current domestic strength.”
Howard Archer, chief UK and European economist at IHS Global Insight, said: “Clearly, there is currently major uncertainty over UK monetary policy, but the question still seems very much one of when will the Bank of England start to inch interest rates?
“The markets have pushed back their expectation of when the Bank will lift interest rates to 0.75 per cent to late-2016 or early 2017 following the very weak US jobs report for September that came out on Friday – but we believe that this is a significant over-reaction.”
Archer added: “If we had to make a call now, we would plump for a February interest rate hike – but with no great confidence in the call.”