Interest Rate Rise - lettings sector braced for bad news

There’s widespread concern that the Bank of England’s monetary policy committee, which meets tomorrow, is to unveil a 0.75 per cent rise in base rate.

If that’s the case base rate - on which most mortgage costs and other loans are based - will hit 3.0 per cent. If the rise is agreed, It will be the eighth consecutive jump in rates by the Bank and the largest single increase in 33 years. 

An increase of that size would match the European Central Bank’s interest rate rise last week as well as predictions for the US Federal Reserve, which makes its rate announcement later today, a day ahead of the Bank of England.

The BoE’s last interest rate meeting was in late September, around the time of the notorious Truss/Kwarteng mini-Budget when markets were more nervous about the UK’s economic direction and unfunded tax cut proposals. Now new prime minister Rishi Sunak and Chancellor Jeremy Hunt are promising a new economic strategy in the November 17 Autumn Statement, with markets much calmer as a result.

Samuel Tombs, an economist at Pantheon Macroeconomics, says he anticipates “the MPC to hike bank rate by 0.75 percentage points, but to signal smaller hikes at future meetings”. 

The Bank of England will also this week give its view on the wider UK economy, and some analysts expect it to row back - at least slightly - on its previous forecast that inflation would reach 13 per cent by the end of this year.

The Financial Times points out that the forecast this time is tricky to calculate.

It says: “The forecasts are unusually difficult for BoE officials to piece together, because it is unclear what the government’s policy is on taxes and spending amid volatile markets. To underpin its forecasts, the BoE normally uses market prices — including expectations of future interest rates — from a 15-day period that expires just over a week before a monetary policy committee meeting. 

“In relation to the November 3 meeting, this period would include the aftermath of the ‘mini’ Budget turmoil, making the forecasts appear worse than they need be. BoE officials will therefore have to choose whether to ditch the BoE’s normal forecasting conventions to produce predictions that reflect how calm has returned to markets in recent times.”

The base rate announcement is made at noon tomorrow.