The Bank of England policymakers voted unanimously 9-0 to raise bank rate to 0.75% compared with the expectations of a 7-2 voting pattern. The Bank of England estimates long-term trend for real interest rate in the UK economy around zero to 1.0%, equivalent to bank rate of 2-3%; shorter-term equilibrium interest rate is lower.
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While it is widely expected that the Bank of England will hike the Bank rate from 0.50% to 0.75% at its tomorrow’s meeting, the voting pattern is set to remain split and the uncertainties will prevail in the decision making of the Monetary Policy Committee (MPC) so the Sterling is likely to suffer following the decision. Markets are all convinced of the Bank of England delivering tomorrow with the probability close to 90%. And the Bank of England will lift the Bank rate to the highest level in a decade. That’s about the most important historical. Otherwise, the language around the rate hike is set to remain dovish with an accent on “gradual and limited” path of the Bank rate normalization.
Brexit negotiations, exploring unknown territory
The progress in Brexit negotiations is slower than expected. The next round of negotiations, originally scheduled on September 18, is postponed by a week. Media reports suggested that UK's PM Theresa May was preparing to make an "important intervention" on the talks. While the UK urged the EU to be more flexible and to move to trade deals, the EU insisted that the “divorce bill” issue has to be resolved first. EU's chief negotiator Michael Barnier noted last week that he was “very disappointed” by the UK government as it “seems to be backtracking” on commitments to the bill.
While the hawkish members, mainly Michael Saunders and Ian McCafferty, would warn of strong inflation on the economy, the rest would consider the overall economic environment and uncertain outcome of Brexit as key factors to keep the monetary policy unchanged.
What is the BOE?
Founded in 1694, the Bank of England is the central bank of the United Kingdom. Sometimes known as the ‘Old Lady’ of Threadneedle Street, the Bank’s mission is "to promote the good of the people of the United Kingdom by maintaining monetary and financial stability".
The Bank of England is responsible for keeping the UK’s economy on the right track. They operate monetary policy by moving Bank Rate up and down and, in certain circumstances, we also supplement this with measures such as quantitative easing.
Who is BOE's president?
Mark Carney is Governor of the BoE and Chairman of the Monetary Policy Committee, Financial Policy Committee and the Prudential Regulation Committee. His appointment as Governor was approved by Her Majesty the Queen on 26 November 2012. The Governor joined the Bank on 1 July 2013.
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The World Interest Rates Table
The World Interest Rates Table reflects the current interest rates of the main countries around the world, set by their respective Central Banks. Rates typically reflect the health of individual economies, as in a perfect scenario, Central Banks tend to rise rates when the economy is growing and therefore instigate inflation.