Should the Bank of England raise rates this week

ended 03. November 2021

The big event this week, for households and small businesses, is whether the Bank of England raises interest rates at midday on Thursday in a bid to contain spiralling inflation. Mortgage lenders and many major city investment banks are certainly betting on a rate hike. We want your thoughts, e.g.

  • Is there still too much uncertainty in the economy for the Bank of England to hike rates, even by a nominal amount?
  • Should the Bank leave rates where they are and see if the inflation caused by the supply chain crisis drops off during 2022?
  • How would an interest rate rise, even a negligible one, affect you and/or your business (e.g. weakened consumer/business sentiment)?

As ever, keep your responses short and sweet. You known what journalists want: soundbites, not In Search of Lost Time.

7 responses from the Newspage community

Star Quote
"With expectation of a rate rise this year having reached fever pitch in recent weeks, a shot across the bows in the form of a modest rise seems an appropriate move. Increasing the base rate by 0.15% to 0.25% would signal the Bank of England are mindful of the inflation risk while not creating any undue drag on the recovering economy."
Star Quote
"This week's interest rate decision will be a tight-rope situation balancing the need to control inflation against the cost of personal debt, which is already very high and increasing. Consumers are highly leveraged and a rise in interest rates, even a small one, could put a lot of people under real pressure and also impact consumer sentiment. Short of another major economic shock, rates are only going one way from now on."
Let's just remind ourselves how the base rate got to 0.1% in the first place... The events of March 2020. It was right for the time but the challenges of March 2020 are completely different to those of November 2021, and monetary policy must reflect that. To leave the base rate as is would leave the Bank in an even worse position next time a reduction is needed, and one day we will need rates to fall again. Right now all the macroeconomic indicators point to a rise.
I’d like to see the BoE leave the base rate alone until at least the end of Spring 2022 as the majority of this inflation is likely the result of global gas shortages, supply chain issues and economies reopening following COVID. Of course, the UK economy has its own self-imposed headwinds brought on by Brexit which will prove more difficult to navigate and was always bound to be inflationary. Personally, I think our recovery is still too fragile to start imposing rate rises, however I fear that the old guard, educated in the traditional economic mantras, which lets be honest, no longer serve us or adequately describe global economics, will have them reaching for the rate rise button. Without a doubt, we are heading into an unknown and turbulent economic future. Alas, we still haven’t fixed our navigation systems from the storm of 2008 and standing on deck peering into the squally seas, I have the distinct worry that the Kracken awakes.
"The money markets have already priced in a potential rate move as inflation starts to bite, but many believe that this is a temporary situation and inflation will start to ease off early next year. This may well be enough to see the Bank of England hold its nerve and adopt a wait-and-see approach, with the first move coming in Q1 next year rather than this. In truth it is a delicate balancing act with the Bank of England keen to avoid anything that might derail a recovery on one side, or hold off too long to be behind the curve on the other leading to faster, sharper rises. Whilst these decisions remain on a knife-edge, one thing we do know is that we should all be preparing for rate rises sooner rather than later."
Alastair Hoyne
Owner at Finanze
Professional property investors will have already priced in the interest rate rise. Ultimately it will just be passed on to renters. As usual it will be first time buyers that will suffer the most. But given rising inflation it makes sense to raise interest rates. Basic economics teaches us that when approaching a depression, raise interest rates to get people to conserve their capital, then having built up a strong reserve, start spending to buy their way out, in turn leading to relaxed interest rates.
"The Bank of England should leave interest rates alone until 2022, as recovering from the pandemic will be a marathon and not a sprint. Growth has been slow because incomes are being squeezed and households have less and less to spend. Ahead of Christmas, we need people spending after what has been a really difficult two years for retailers. As a small business owner, costs are on the rise at every turn, while passing on these costs to clients is a risky move to make as they in turn are seeing the consumers of their products with less to spend. Let’s fix the supply chain issues first, then check our navigation again."