Predicting a central bank’s actions can be risky but there will certainly be surprise in the City of London today if the Bank of England does not raise interest rates at midday.
The Bank is widely expected to announce its first increase in UK interest rates in more than three years. A quarter-point rise would take the Bank rate up to 4% from 3.75%.
With inflation rising faster than the Bank’s target, most of its policymakers are expected to decide now is the moment to tighten monetary policy. This, they may hope, would dampen the risk that high energy costs spill over and push up the cost of other goods and services.
The Bank has not increased borrowing costs since August 2023, when the Bank rate hit 5.25%.
It will also be playing “catchup” with other central banks – rates have already risen in the US, Japan, the eurozone, Australia and Canada this year.
Deutsche Bank analysts predict the Bank of England’s monetary policy committee will split 6-3 in today’s vote, with a majority voting for a rate increase to 4%.
The committee is split between hawks (who want higher rates to fight inflation) and doves (who fear higher rates will hurt economic growth).
Deutsche Bank also predicts the Bank’s latest economic forecasts will show inflation rising as high as 4.25% by the first quarter of 2027, along with an upgrade to the 2026 growth forecast to 1.4%.
The Bank of England will be reassured to see that the oil price has tumbled this week.
Brent crude fell through the $100 a barrel mark yesterday, hitting its lowest level in two months, and this morning is trading at about $95 a barrel.
Traders appear to be concluding that Donald Trump may try to de-escalate the Middle East conflict after his Republican party were given a hammering in this week’s midterms.
Today’s key events
• 9am GMT: UK car sales report for October
• 9.30am GMT: UK construction PMI for October
• Noon GMT: Bank of England interest rate decision
• 12.30pm GMT: Bank of England press conference
• 1.30pm GMT: US jobless claims report
We’ll be tracking all the main events throughout the day on our business live blog …
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