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| Version 2 | Version 3 |
|---|---|
| UK interest rate rise is coming, Bank of England tells borrowers | UK interest rate rise is coming, Bank of England tells borrowers |
| (5 days later) | |
| Decision to hold rates now came with heavy caveats that a rise is likely in May to tackle inflation | Decision to hold rates now came with heavy caveats that a rise is likely in May to tackle inflation |
| Rate rise warning is sign tackling inflation is Bank’s priority | Rate rise warning is sign tackling inflation is Bank’s priority |
| Richard Partington | Richard Partington |
| Thu 8 Feb 2018 12.24 GMT | Thu 8 Feb 2018 12.24 GMT |
| Last modified on Wed 14 Feb 2018 15.27 GMT | |
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| The Bank of England has signalled that an interest rate hike is coming from as early as May and that there are more to come, as the economy accelerates with help from booming global growth. | The Bank of England has signalled that an interest rate hike is coming from as early as May and that there are more to come, as the economy accelerates with help from booming global growth. |
| Threadneedle Street said it would need to raise rates to tackle stubbornly high inflation “somewhat earlier and by a somewhat greater extent” than it had anticipated towards the end of last year. | Threadneedle Street said it would need to raise rates to tackle stubbornly high inflation “somewhat earlier and by a somewhat greater extent” than it had anticipated towards the end of last year. |
| While the Bank’s rate-setting monetary policy committee (MPC) voted unanimously to leave rates at 0.50% this month, the tone of its discussion suggests the cost of borrowing will not remain this low for much longer. | While the Bank’s rate-setting monetary policy committee (MPC) voted unanimously to leave rates at 0.50% this month, the tone of its discussion suggests the cost of borrowing will not remain this low for much longer. |
| Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common. | Inflation is when prices rise. Deflation is the opposite – price decreases over time – but inflation is far more common. |
| If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that. | If inflation is 10%, then a £50 pair of shoes will cost £55 in a year's time and £60.50 a year after that. |
| Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%. | Inflation eats away at the value of wages and savings – if you earn 10% on your savings but inflation is 10%, the real rate of interest on your pot is actually 0%. |
| A relatively new phenomenon, inflation has become a real worry for governments since the 1960s. | A relatively new phenomenon, inflation has become a real worry for governments since the 1960s. |
| As a rule of thumb, times of high inflation are good for borrowers and bad for investors. | As a rule of thumb, times of high inflation are good for borrowers and bad for investors. |
| Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage. | Mortgages are a good example of how borrowing can be advantageous – annual inflation of 10% over seven years halves the real value of a mortgage. |
| On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode. | On the other hand, pensioners, who depend on a fixed income, watch the value of their assets erode. |
| The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI). | The government's preferred measure of inflation, and the one the Bank of England takes into account when setting interest rates, is the consumer price index (CPI). |
| The retail prices index (RPI) is often used in wage negotiations. | The retail prices index (RPI) is often used in wage negotiations. |
| The Bank’s governor, Mark Carney, had previously suggested there could be two further rate hikes to curb inflation over the next three years – but speculation will now mount over the chance of additional rate hikes. | The Bank’s governor, Mark Carney, had previously suggested there could be two further rate hikes to curb inflation over the next three years – but speculation will now mount over the chance of additional rate hikes. |
| The pound rose on foreign exchanges following the interest rate decision, hitting almost £1.40 against the dollar. City investors give a 75% chance of a rate hike in May, after having previously given a 50-50 probability. | The pound rose on foreign exchanges following the interest rate decision, hitting almost £1.40 against the dollar. City investors give a 75% chance of a rate hike in May, after having previously given a 50-50 probability. |
| The FTSE 100 sold off sharply, falling by more than 108.7 points to below 7,200, amid a global stock market rout triggered by concerns among investors that central banks will need to raise interest rates faster than expected to curb rising inflation. On Wall Street, the Dow Jones Industrial Average was down more than 400 points by lunchtime. | The FTSE 100 sold off sharply, falling by more than 108.7 points to below 7,200, amid a global stock market rout triggered by concerns among investors that central banks will need to raise interest rates faster than expected to curb rising inflation. On Wall Street, the Dow Jones Industrial Average was down more than 400 points by lunchtime. |
| Threadneedle Street said inflation would fall more gradually than it had previously anticipated, because workers’ pay is slowly beginning to pick-up and as the oil prices is rising. “The outlook for growth and inflation [is] likely to require some ongoing withdrawal of monetary stimulus,” the MPC said. | Threadneedle Street said inflation would fall more gradually than it had previously anticipated, because workers’ pay is slowly beginning to pick-up and as the oil prices is rising. “The outlook for growth and inflation [is] likely to require some ongoing withdrawal of monetary stimulus,” the MPC said. |
| Although the consumer price index reached 3.1% in November and is forecast to fall over the coming year as the effects of the weak pound following the Brexit vote begin to fade, the Bank said it is likely to remain above the 2% target. | Although the consumer price index reached 3.1% in November and is forecast to fall over the coming year as the effects of the weak pound following the Brexit vote begin to fade, the Bank said it is likely to remain above the 2% target. |
| Writing to the chancellor, Philip Hammond, to explain why inflation was more than one percentage point outside the government’s target, Carney said it was now “appropriate to set monetary policy so that inflation returns sustainably to its target” after previously having left the rate unchanged to support jobs and growth. | Writing to the chancellor, Philip Hammond, to explain why inflation was more than one percentage point outside the government’s target, Carney said it was now “appropriate to set monetary policy so that inflation returns sustainably to its target” after previously having left the rate unchanged to support jobs and growth. |
| A sustained upswing in global economic activity over the past year – led by the eurozone and stronger growth in the US and China – has helped to prevent a sharper Brexit-related slowdown in Britain. | A sustained upswing in global economic activity over the past year – led by the eurozone and stronger growth in the US and China – has helped to prevent a sharper Brexit-related slowdown in Britain. |
| Andrew Sentance, senior economic adviser at PwC and a former member of the MPC, warned that rates could rise up to three times this year as a result of inflationary pressures and global growth. “All this points to rising interest rates, both here in the UK and in other major economies.” He added: “It is still likely that we will see at least one quarter point rise in 2018 and possibly two or three.” | Andrew Sentance, senior economic adviser at PwC and a former member of the MPC, warned that rates could rise up to three times this year as a result of inflationary pressures and global growth. “All this points to rising interest rates, both here in the UK and in other major economies.” He added: “It is still likely that we will see at least one quarter point rise in 2018 and possibly two or three.” |
| Ben Brettell, senior economist at Hargreaves Lansdown also said the drive to constrain inflation meant “rates could rise faster and further than investors had expected.” | Ben Brettell, senior economist at Hargreaves Lansdown also said the drive to constrain inflation meant “rates could rise faster and further than investors had expected.” |
| Britain grew at its fastest rate in 2017 in the final quarter of the year, after a slump prompted by a slowdown in consumer spending earlier in the year, but is now forecast to rebound with the help of global trade. That is despite tough conditions for British households under intense pressure since the Brexit vote as the weak pound pushes up the cost of importing food and fuel. | Britain grew at its fastest rate in 2017 in the final quarter of the year, after a slump prompted by a slowdown in consumer spending earlier in the year, but is now forecast to rebound with the help of global trade. That is despite tough conditions for British households under intense pressure since the Brexit vote as the weak pound pushes up the cost of importing food and fuel. |
| Brexit uncertainty has constrained the speed at which the UK can grow before prices begin to spiral, according to the Bank, which said the growth potential of the economy had been clipped below the levels it was able to achieve in previous years. | Brexit uncertainty has constrained the speed at which the UK can grow before prices begin to spiral, according to the Bank, which said the growth potential of the economy had been clipped below the levels it was able to achieve in previous years. |
| Threadneedle Street reckons the annual supply capacity of the economy can only rise by about 1.5% before generating increased inflationary pressures, but estimates GDP growth will average about 1.75% each year until 2021. | Threadneedle Street reckons the annual supply capacity of the economy can only rise by about 1.5% before generating increased inflationary pressures, but estimates GDP growth will average about 1.75% each year until 2021. |
| For several weeks, economists and analysts have warned that inflation levels in major economies could increase this year beyond the 2% to 3% that central banks believe is good for developed countries. Official US figures turned those concerns into a sell-off last Friday, after they showed average wage rises in the US had reached 2.9%. The data increased fears that shop prices would soon rise further, increasing the pressure for high interest rates to calm the economy down. Investors then bolted at the prospect of an era of cheap money – which encourages consumers and companies to spend – coming to an end. Over the past month, several members of the US central bank, the Federal Reserve, have argued that three 0.25% interest rate rises scheduled for this year could become four or five. | For several weeks, economists and analysts have warned that inflation levels in major economies could increase this year beyond the 2% to 3% that central banks believe is good for developed countries. Official US figures turned those concerns into a sell-off last Friday, after they showed average wage rises in the US had reached 2.9%. The data increased fears that shop prices would soon rise further, increasing the pressure for high interest rates to calm the economy down. Investors then bolted at the prospect of an era of cheap money – which encourages consumers and companies to spend – coming to an end. Over the past month, several members of the US central bank, the Federal Reserve, have argued that three 0.25% interest rate rises scheduled for this year could become four or five. |
| There is every prospect that the US economic data will continue to strengthen, increasing the potential for higher interest rates. President Donald Trump’s tax reform bill, which gained approval in Congress before Christmas, will inject more than $1tn (£710bn) into the US economy, much of it in the form of corporation tax cuts. Many firms have pledged to give a slice of the cash to their workers. Decades of flat wages should mean that increases expected in 2018 and possibly 2019 are too small to trigger a reaction from the central bank, but investors are betting rates will rise. As a consequence, stock market jitters could continue. | There is every prospect that the US economic data will continue to strengthen, increasing the potential for higher interest rates. President Donald Trump’s tax reform bill, which gained approval in Congress before Christmas, will inject more than $1tn (£710bn) into the US economy, much of it in the form of corporation tax cuts. Many firms have pledged to give a slice of the cash to their workers. Decades of flat wages should mean that increases expected in 2018 and possibly 2019 are too small to trigger a reaction from the central bank, but investors are betting rates will rise. As a consequence, stock market jitters could continue. |
| Many developing world economies have borrowed heavily in dollars and will be stung by the higher cost of servicing their debts. On the other hand, a booming US economy will suck in imports from those nations, boosting the incomes of the developing world. However, the eurozone looks unlikely to increase interest rates until its recovery is more firmly anchored. That means the euro will continue to rise in value against the dollar, making it harder for European countries to export to the US. | Many developing world economies have borrowed heavily in dollars and will be stung by the higher cost of servicing their debts. On the other hand, a booming US economy will suck in imports from those nations, boosting the incomes of the developing world. However, the eurozone looks unlikely to increase interest rates until its recovery is more firmly anchored. That means the euro will continue to rise in value against the dollar, making it harder for European countries to export to the US. |
| Worries over rising inflation have spooked financial markets in recent weeks, pushing up bond yields and triggering a sell-off in shares, as investors speculate how fast central banks will tighten monetary policy. Although most of the focus has been on the Federal Reserve and the arrival of its new chairman, Jerome Powell, the Bank’s latest inflation report is likely to have fuelled fears in the City. | Worries over rising inflation have spooked financial markets in recent weeks, pushing up bond yields and triggering a sell-off in shares, as investors speculate how fast central banks will tighten monetary policy. Although most of the focus has been on the Federal Reserve and the arrival of its new chairman, Jerome Powell, the Bank’s latest inflation report is likely to have fuelled fears in the City. |
| The MPC said it was too early to gauge how large and persistent market corrections were likely to be. “Notwithstanding recent volatility in financial markets, global financial conditions remain supportive,” it added. | The MPC said it was too early to gauge how large and persistent market corrections were likely to be. “Notwithstanding recent volatility in financial markets, global financial conditions remain supportive,” it added. |
| Bank of England | Bank of England |
| Inflation | Inflation |
| Interest rates | Interest rates |
| Economic growth (GDP) | Economic growth (GDP) |
| Economic policy | Economic policy |
| Economics | Economics |
| news | news |
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