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Interest rate rises ‘clearly likely’ over next few quarters, says BoE policymaker

  • 03/12/2021
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Interest rate rises ‘clearly likely’ over next few quarters, says BoE policymaker
Bank of England policymaker Michael Saunders has said that the bank rate will likely rise in the coming months.


In an online speech earlier today, Saunders said he had voted to increase the bank rate to 0.25 at the November meeting held by the Monetary Policy Committee (MPC).

He said he did it because he thought the need for some withdrawal of stimulus had strengthened due to domestic capacity and price pressure, especially in the labour market.

At that meeting, much to the surprise of the market, the MPC voted to maintain the base rate at the historic low of 0.1 per cent.

Saunders said if the economy developed “in line” with the Monetary Policy Report central forecast or his expectations, the “direction of travel for bank rate during the next few quarters is clearly likely to be upwards”.

He said an interest rate outlook would be to withdraw monetary policy stimulus in the context of a low neutral rate as opposed to a move to a tight policy stance.

Saunders said: “It is likely that any rise in bank rate will be limited given that the neutral level of interest rates remains low. Provided we do not delay.”

However, he said the decision to increase the rate in December would be highly dependent on the economic impact of the Omicron variant.

Saunders added: “At present, given the new Omicron Covid variant has only been detected quite recently, there could be particular advantages in waiting to see more evidence on its possible effects on public health outcomes and hence on the economy.

“But continued delay also could be costly. If the economy continues along its recent path, then maintaining the current highly accommodative policy stance would probably allow the labour market to tighten further and, with inflation well above target, reinforce risks of a further rise in long-term inflation expectations. This could require a more abrupt and painful policy tightening later.”

In its Monetary Policy Report for November, the bank predicted that in Q4 this year the base rate would rise to 0.2 per cent, by Q4 next year it will be one per cent, and by Q4 2023 it will be 1.1 per cent. According to its forecast, the rate will fall back down to one per cent by the final quarter of 2024.

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