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Should the BoE raise rates tomorrow?

ended 02. November 2022

The big story tomorrow (Thursday) is interest rates and we'd love to get your responses to the following Qs. The consensus seems to be we'll get a 0.75% hike, taking Bank Rate to 3%.

  • Should the Bank of England raise rates tomorrow?
  • If so, by how much? If not, then why?
  • Have lenders already priced in tomorrow's likely rate rise?
  • How high could rates go as Threadneedle Street seeks to tackle inflation?
  • What are your views on the Bank of England's handling of the inflationary bubble we're currently in?

Any other thoughts, jot them down but please don't write more than two paragraphs.

9 responses from the Newspage community

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Craig Fish
Director at Lodestone Mortgages
The Bank of England's monetary policy committee are in a difficult place. On the one hand they need to bring inflation down, and on the other they need to show some empathy towards the already overstretched households of the UK. It's extremely likely that rates will increase by 0.5% or 0.75% on Thursday, but this is not likely to have any real impact on inflation, and neither will any of the further expected rises that are coming as rates head towards 4.5%-5% next year. Likewise, this won't have any impact on the current mortgage rates we are seeing as these expected rate rises have already been factored in. The issue we have is that the inflation is caused by worldwide events that are completely beyond our control. It is not caused by the overstretched households of the UK going on a spending spree. They simply don't have the money available to do so. What I think is needed is a new approach and some fresh thinking to try and find new ways to tackle an age old problem. Stop looking at historic data and handling things in the same way over and over again, because look at the mess we are in right now. Why not look to the future and start trying to predict where you see the economy going and act accordingly? We are facing a recession and increasing rates is only going to deepen the problems that will come from that.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The Bank of England’s mandate is to target inflation at 2% so it will almost certainly increase interest rates, most likely by 0.75%. If they were given a wider mandate than the one they have, namely trying to reduce volatility in the country’s GDP, the decision might be different and create better outcomes. We all know we are in the mouth of a recession. This will mean dramatically slowing inflation, if not deflation and a crumbling economy. The Bank of England will then be forced to reduce rates. Rather than making decisions with historic data and hindsight, I’d like to see Threadneedle Street trying to forecast where the economy is going and making decisions in the best interests of the economy. This would see rates being held at their current level and this could last for longer, before considering reductions. I expect Bank Rate to go up to 4% by early Spring. This will damage households and businesses and make the recession worse. They will be held in place at a high rate for too long as the Bank waits for data showing how bad things were in the previous months, and then they will fall away into next autumn. They will never return to the historic rates of near zero, but I expect to see them down to about 2% by next Christmas as I expect the recession we are already in to be a bad one.
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Wes Wilkes
CEO at IronMarket Wealth
Like the White Rabbit in Alice in Wonderland, Bailey and the Bank of England are so late, they have no choice but to deliver the 75bps everyone and every entity has already priced in. Whilst they're not the initial cause of the inflationary bubble, like other central banks being too late and too slow to react in 2021, they will now almost inevitably be raising rates as we head into a recession. The irony is there may even be a reversal and rate cuts in late 2023 into 2024. The whole thing is a largely self-made mess.
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Philip Dragoumis
Director and Owner at Thera Wealth Management
The markets are expecting a 0.75% rate hike by the Bank of England this week, taking the base rate to 3%. This would be the largest rise since 1989, and would take rates to a level not seen since 2008. The Bank of England, not wanting to be left out, would match the 0.75% rise by the ECB and potentially the US Fed today. Expectation management, however, is important. The markets are expecting rates to peak at around 4.75% next year, but the Bank may signal tomorrow that these could peak at a lower level. After the Truss debacle, the Sunak administration is keen to bring mortgage and interest rate expectations down as this would mean a lower deficit and less austerity. As a result, we could see the beginning of the end of the rate hiking cycle as inflation is likely to come down over the next year. The downside to all this, of course, is that we are facing a big squeeze in living standards and a potentially severe recession.
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Graham Cox
Director at Bridging Hub
The Bank of England has no choice but to raise rates if they want to tame inflation. They need to protect the pound, particularly against the all-powerful dollar. Any weakening in sterling will make dollar-denominated imports such as oil and gas more expensive. To date, the base rate hikes have been surprisingly timid, and I expect the gently as she goes approach to continue with a 0.75% hike to 3%. But it's not inconceivable they could throw in a 'bazooka' hike of 1% to 1.25%.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
The question, 'should the Bank of England raise interest rates', is relative. If you sit in an ivory tower and have a target of keeping inflation below 2%, then yes raising rates is tempting. If you have a shred of empathy for stretched households, no, you wouldn't. Inflation isn't being caused because people's mortgages are too cheap. Simply jacking up rates is a blunt tool for a nuanced problem and we need fresh ideas to address the root causes of a global issue.
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Marcus Wright
Managing Director at Bolton Business Finance
There's more chance of Boris becoming prime minister again than the base rate staying the same this week. However, I am not expecting massive movements from mortgage lenders, as this has been priced in. Problem is, the base rate is a blunt tool. It's used to tame inflation by basically taking money off people and encouraging saving. As painful as this can be, inflation has to be brought down.
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Graham Wells
Founder and Financial Coach at GroWiser Financial Coaching
For savers and borrowers, there's little to be gained from speculating on what the Bank of England might do with interest rates. It's not something we can influence. What we can do, however, is take action to prepare as best we can. Savers could set some time aside to search the market for the best accounts if interest rates are hiked again. Remember not to keep too much in cash, as the long term effects of inflation will generally cancel out any interest earned. For borrowers on variable rates, consider if it's still worth switching to a fixed rate deal or at least prepare for increased monthly payments. Think about what other expenses could be scaled back, or consider opportunities to boost earnings or other income. If you have a fixed rate loan coming to an end, check what new deals are available and remember that you can lock into a new rate a few months before your existing arrangement comes to an end.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
The Bank of England definitely has to raise rates tomorrow by 0.75%. The US Fed remains hawkish, with five rapid hikes in 2022 alone, which has weakened global currencies against the greenback. Although the pound has already recovered these past days, we still forecast fluctuations until the end of the year. Raising interest rates will attract capital from overseas, which will boost demand for sterling and lift its value. The Fed has already put so much pressure on the pound, so the Bank of England's hike will help mitigate any falls against the dollar in the weeks to come. Most lenders have already priced in a rise and those that have not have withdrawn BTL products temporarily with a view to re-releasing them after the rate rise announcement. What the Bank of England needs is a soft landing given that its monetary policies need to work with Sunak's fiscal strategy.