Bank of England Two Year Interest Rate Outlook

June 18, 2019

The Bank of England Monetary Policy Committee meet on 20th June, and raising interest rates is likely to be a topic under consideration. Three senior members of the Committee have already warned that the UK is likely to need to raise interest rates several times in the next two years, irrespective of the global trade slowdown and likely interest rate cuts in the United States.

A trade slowdown and subsequent collapse in investor spending are likely to decrease global GDP increase to around 2.6% for 2019, prior to slowly increasing to 2.7% for 2020 according to the World Bank.

Potential UK Interest Rate Rises

Ben Broadbent is the Deputy Governor of the Bank of England and has already commented that checks on the health of the UK economy in May indicated that increases to interest rates are warranted.

Any increases are also likely to be far more stringent than presently anticipated by financial markets. One major reason for this is the increase in UK inflation due to higher wages.

Ben Broadbent is not alone in fielding this viewpoint, as Andy Haldane, the Chief Economist at the Bank of England, and Michael Saunders, an external member of the Monetary Policy Committee, both feel strongly that interest rates need to be increased.

Andy Haldane states that an increase is needed in order to “nip inflation pressure in the bud“, while Michael Saunders has commented that there is no reason to delay interest rate increases due to uncertainty over Brexit.

Ben Broadbent recently advised a parliamentary committee as follows:

Were the economy to develop in line with our projection … interest rates would probably have to rise by a little more than what was in the curve at the time of the forecast.

He also told the committee that UK market investors did not agree with the move, however, this will be of little concern to the Bank of England due to Brexit issues that could alter the UK’s future even more significantly.

At present all Bank of England forecasts are made on the assumption that the UK will not experience an abrupt, no deal exit from the EU.

Another member of the Monetary Policy Committee, Gertjan Vlieghe, commented: “The news since May I think has been … a little disappointing and in terms of both the global downside risks and the domestic downside risks my read is that they have both intensified“.

All the above statements are highly likely to influence Committee members at their meeting on 20th June and over the months and years ahead.