by Mark Johnston
The Bank of England (BoE) has warned the UK that there is a distinct likelihood that inflation may soon e above 5 per cent. This may even happen within the next few months and adds more emphasis behind the push to raise interest rates.
Member employed by the BoE are divided as to when and how high rates should rise but they are all fairly certain that the Base Rate will need to rise to counteract potential soaring inflation figures.
The Inflation Report, delivered in February, noted that the inflation forecast peaked at 4.5 per cent in the three months leading up to September. However, in the minutes taken during the recent Monetary Policy Committee, it became clear that they were issuing caution and warned that “a significant risk that inflation would exceed 5 per cent in the near term”.
This warning tends to convince more of the 9 member strong Monetary Policy Committee that the time to raise rates is coming soon. Furthermore, minutes from the meeting indicated that there were three members who wanted to raise the base rate in February and the meeting notes suggest that further members are ready to join this way of thinking. “Others thought that, given further upwards revisions to the near-term outlook for inflation, the case for an increase in Bank Rate had strengthened in recent months.”
Banks, lenders, mortgage providers and industry experts are all fairly well convinced that the BoE base rate will rise before the year is out. Banks are betting on a June rise.
The BoE Monetary Policy Committee decided, when they can come to a general agreement, to keep the 0.5 percent base interest rate is needed and is prudent.
The Monetary Policy Committee are quite happy to wait and see what the early figures say regarding first quarter growth on Gross Domestic Produce (GDP). Investors are betting the Bank will hold out on action until May or June but this is where the economic picture becomes a little clearer and where decisions need to be made and risks taken. I believe that the rate will rise but very slowly this year but will remain low for many years.
“Overall, the uncertainty created by both developments in the oil market and the recent indicators of household spending and confidence meant that there remained merit in waiting to see how those factors evolved before altering the stance of monetary policy,” said the minutes.
For the moment, the MPC is steadying the ship and being cautious and waiting for the economic picture to clear up a little more. With the new budget out now, the Government is being cautious and taking a very softly softly approach.
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