Expectation has been growing in the last month that the Bank of England’s Monetary Policy Committee (MPC) will vote to raise the bank’s Base Rate for the first time in almost a decade at its next meeting.
This has been driven by statements from BoE governor Mark Carney that rates were likely to rise in the near term, and as a result the banking system has already reacted with increases in Swap rates, which have pushed mortgage interest rates higher.
However, Oxford Economics suggests the decision may not yet be a forgone conclusion.
It agreed that inflation climbing to its highest point in five and a half years (at 3%) and the continued low jobless rate would push for a rate rise, however it noted that other factors suggested otherwise.
These included that inflation was pushed higher by import-led external factors which should wear-off soon, and there had been falls in regular pay growth and retail sales.
This had prompted three members of the MPC to publicly hint that the time may not be right for a rate rise.
In particular, deputy governor Sir Jon Cunliffe (pictured) told the BBC: “We are not seeing pay pressure and for me we are not seeing sustained signs of domestic inflation pressure”.
The Oxford Economics report said: “All in all, the committee is perhaps on more of a knife-edge than appeared to be the case a week ago.”
It added: “Overall, the odds of the MPC increasing Bank Rate in November have slimmed. In light of last week’s developments, we attach a probability of 55% to a hike – a knife-edge indeed.”