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Base rate set to rise for the 15th time before pause for breath, economists predict

Written by: Rebecca Goodman
The Bank of England (BoE) base rate is predicted to rise again next week, for the 15th month in a row, to 5.5%, according to a major bank.

But it could be the last rate rise by the BoE signalling an end to spiralling mortgage and savings rates. The bank decided to raise the base rate for the 14th-month in a row in August to 5.25%.

Experts at Deutsche Bank are speculating that there will be an eight to one vote split among the Monetary Policy Committee (MPC) at next week’s meeting.

They refer to the fact that Governor of the BOE, Andrew Bailey, recently noted that the UK economy has moved broadly in line with expectations and there had been positive signs with inflation falling and predicted to be 4.6% by the end of the year.

However, it says a further base rate rise to 5.75% is not off the cards and its view is that the rate will peak at this level.

‘One more hike’

Sanjay Raja, senior economist for Deutsche Bank, said: “Stronger pay momentum, we think, could end up leading the MPC to one more hike as the final set of public sector pay deals kick in.

“Forthcoming data on inflation and wages will ultimately sway the MPC one way or another. But, given recent MPC speak, and our expected changes to the forward guidance, the bar may be higher for any upside surprises to force a sixteenth consecutive rate move. Put differently, while it may be a little too early to say, September’s likely hike may put Bank Rate at the peak of the hiking cycle.”

‘Higher rates set to linger’

Susannah Streeter, head of money and markets for Hargreaves Lansdown, said: “The cost-of-living crisis, high borrowing costs, bad weather and strikes have all conspired to cause the economy to contract. As the resilience of consumers and companies is chipped away, more demand is set to be squeezed out of the economy, which should help limit price rises going forward.

“Nevertheless, with wage growth still hot and fuel prices higher, it still looks likely that the Bank of England will raise interest rates again next week from 5.25% to 5.5%. The upcoming inflation snapshot will be closely watched for signs that core inflation, which strips out the volatile food and energy prices, is still proving sticky.

“The September rate decision may well mark the end of the hiking cycle, given that unemployment has also ticked up, companies are showing more reluctance to hire staff and we have still yet to feel the full effect of previous rate increases. But higher rates are set to linger given that the 2% inflation target still seems so far away, so right now a cut isn’t expected until at least the second half of next year.’’


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