Bank of England interest rate vote this week 'a foregone conclusion' despite Iran war cost of living hike
Economists think the Bank of England will look beyond a recent spike in inflation caused by soaring fuel prices when it votes on whether to change its base rate this Thursday
The Bank of England is expected to keep interest rates on hold this week – despite a feared jump in living costs due to the Iran war.
Economists say the Bank’s Monetary Policy Committee is likely to keep its base rate at 3.75% in a vote on Thursday. Some of its nine members may vote for a hike to 4% while others think there will be calls for cuts.
Before the Iran war erupted at the end of February, most expectations were the MPC would be focused on a series of cuts this year. But given an energy shock and early signs of higher inflation – up from 3% to 3.3% last month – those plans look to have been kicked into the long grass. A base rate freeze will be welcomed by mortgage borrowers who would be impacted directly or indirectly.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, said: “Signs that the economy is holding up, while inflation is accelerating, makes it more likely that the Bank of England will raise interest rates later this year.”
The Bank of England’s last rate vote came just 19 days after the US-Israel war with Iran erupted.
READ MORE: Iran war could blow a £30BILLION hole in the UK government borrowing plansREAD MORE: Savers given ‘higher for longer’ boost – but there’s ‘£1,700’ alert
Sandra Horsfield, economist at investment bank Investec, said: “Whereas military strikes were still underway during the MPC’s last policy discussion, the upcoming meeting looks to be held while the US’s indefinite ceasefire is in place. However, the repercussions of the conflict are still keenly felt and uncertainty about how the situation could evolve also remains high, which will be key points the MPC will have to consider. We expect the MPC to keep the Bank rate on hold at 3.75% this time, as it did at the March meeting.”
Research firm Pantheon Macroeconomics thinks all nine MPC members will vote to keep the base rate at 3.75% – calling decision “a foregone conclusion” – but with a chance that one or two members might back a cut. Financial markets still there is a 10% chance the MPC will up rates this month.
Caitlyn Eastell, personal finance analyst at Moneyfactscompare.co.uk, said no rate hike could actually be good for savers.
“A 3.75% hold could be positive news for savers, as the ‘higher for longer’ stance could elevate savings rates and reward them with better returns on their cash,” she said. “Now could be an ideal time to review old accounts, loyalty often comes at a significant cost. When shopping around for their next deal, savers need to decide whether they want the flexibility of easy access or the certainty of fixed rates.”