The Bank of England is set to increase the base rate of interest faster and at a higher rate than previously expected, resulting in higher borrowing and savings rates for consumers.
Earlier this week, the nine members of the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the base rate at 0.5 per cent.
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However, the minutes of the meeting revealed that “monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report.”
During November’s MPC meeting, members voted to increase the base rate from 0.25 per cent to 0.5 per cent and indicated that there could be two further increases of 0.25 per cent over the next three years.
However, the bank noted that the global economy was expanding at its fastest pace for seven years, leading to revised forecasts for the UK’s economic growth. In November, the MPC predicted that the UK economy would grow by just 1.5 per cent in 2018, but this has now been increased to 1.7 per cent.
“The Bank’s views appear to be predicated on ongoing strength in the global economy fuelling better than expected growth and higher inflation in the UK,” said Abi Oladimeji, chief investment officer at Thomas Miller Investment.
“In our assessment, the pace of global economic growth is more likely to moderate than to accelerate in the year ahead and UK inflation pressures are likely to ease gradually. Given a few months, the Bank is likely to change its tune again.”
The MPC has admitted that its forecasts are based on a “smooth” adjustment to Britain’s departure from the European Union, and could change again before the next meeting on Thursday 22 March.
Any rate increase is likely to lead to higher borrowing costs for UK consumers, as well as better returns for savers.