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Will the base rate rise next week?

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Written by: Shekina Tuahene
28/01/2022
The Bank of England (BoE) base rate is forecast to rise to 0.5% at the Monetary Policy Committee’s next meeting on 3 February and three more rate hikes have been priced in for this year.

According to economists, there is a 95% chance of the base rate rising to this expectation next week. By the end of the year, the base rate will be set at 1.25% following a series of increases, it has been predicted.

If this happens, this will take interest rates to their highest level since February 2009, AJ Bell said. 

The investment firm also said subsequent higher mortgage rates would “take some steam out of the housing market”. 

It added: “Prices could fall, but a moderation of price growth seems more likely, given the ongoing imbalance between supply and demand, and the presence of continued government support in the form of Help to Buy and the Mortgage Guarantee scheme.  

“The Bank of England certainly won’t want to put so much strain on the economy that homeowners are posting their keys through the letterbox as they leave, because they can’t afford mortgage payments.” 

However, AJ Bell’s report hinted at uncertainty as it noted it would not be the first time the market “got ahead of itself” with regards to interest rates. 

Laith Khalaf, head of investment analysis at AJ Bell, said: “A rate rise at the Bank’s February meeting is all but inked in, which if realised would be the first time since 2004 that the bank has raised interest rates in two consecutive meetings.  

“Market pricing suggests a further three hikes this year, taking base rate to 1.25% by the end of 2022, which would be its highest level since February 2009, just before an ‘emergency’ rate of 0.5% and Qualitative Easing were introduced.” 

He added: “Market pricing can change pretty quickly, and of course, this wouldn’t be the first time markets have got ahead of themselves when it comes to betting on rate rises that never materialised. 

“Last November, markets were certain we were going to get a rate hike, but seven out of nine committee members voted to keep rates on hold. Today though, consistently high inflation and a buoyant labour market make a prima facie case for tighter monetary policy, and having raised rates in December, the Bank’s policy setting committee has some momentum behind it.” 

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