IoD – Interest Rate Rise

Commenting on the decision of the Monetary Policy Committee of the Bank of England to raise interest rates by 0.5 percentage points to 2.25%, Kitty Ussher, Chief Economist of the Institute of Directors, said:

“Expectations of future inflation are still not where the Bank of England would like them to be. Many of our members think that the peak will come next year, and so may price accordingly, running the risk that inflationary expectations become self-fulfilling.

“Combined with imminent announcements of a government stimulus package, plus some remaining – albeit smaller – upward pressure on CPI from household energy prices next month, the Bank of England has made the judgement that interest rates need to continue rising.

“However, the MPC also pointed to recent data showing the UK economy flatlining over the summer, and early signs that labour vacancies may have peaked. This explains why most MPC members chose to raise rates at the lower end of market expectations rather than follow the US and eurozone and go for a higher 0.75 percentage point rise.

“The key question for the months ahead is whether inflation can be tamed without entering recession. With a government determined to go for growth in a rising interest rate environment, that’s still all to play for.”