As the country prepares for the Bank of England’s announcement on interest rates this week, one of the region’s top financial advisers believes a rate rise in November is the most likely scenario.
The Bank of England (BoE) raised interest rates for the first time in a decade last November – taking the headline borrowing rate to 0.5% from 0.25% – but a slowing economy and Brexit on the horizon means the chances of another rise in rates so soon have fallen significantly.
The market is now pricing in an almost zero chance of a rate rise in May, having been at 100% after data pointed to a more buoyant economic outlook.
But recent data suggests that the UK economy may not have been as strong as previously thought. Bad weather in February and March may have played a role, but data from the Office for National Statistics suggested that there was something else behind the weakness.
Their data shows that the UK economy almost stalled in the first quarter of 2018, growing by just 0.1 per cent – the weakest quarterly growth since 2012. Furthermore, inflation fell to 2.5% in March, from 2.7% in February – the lowest rate in a year.
The data surprised many, including the Bank of England’s rate-setting Monetary Policy Committee (MPC).Â If growth had remained solid and inflation high, then the decision to raise rates would not have been so complicated.
Antony Barton, Senior Adviser at Robertson Baxter, said: “The next rate rise is likely to happen in November 2018, by 0.25% to 0.75%. By then, economic data should have recovered and uncertainty over Brexit should be lower.
“I think we could see two more (0.25%) rate rises in 2019,” he added. “The economy is likely to gather momentum and the UK will have departed from the European Union, albeit into a transition phase.
“Rate rises are important to those whose wealth is tied to the value of their homes and the mortgage debt they pay.
“A hike would have meant a rise in borrowing costs for mortgage holders, and potentially slightly higher interest rates for savers. However, without the hike, borrowers and savers are unlikely to see any change.”