INTEREST rates have been kept at rock bottom levels for years and as the pandemic emerged, the Bank of England elected to lower the base rate to just above zero percent. However, a Monetary Policy Committee decision maker recently warned Britons to get ready for rate increases.
The Bank of England has kept the base rate at 0.1 percent throughout the pandemic to support the economy but as a result of this, retail banks are limited on what they can offer. While many expect the low interest rate environment to continue for some time, a member of the Monetary Policy Committee has urged savers to get ready for rises “significantly earlier” than expected as inflation poses a problem.
Inflation is rising in the UK and the Bank of England recently revised its predictions on what the CPI will hit by the end of the year. The central bank warns inflation could reach over four percent by 2022.
Raising interest rates could help bring inflation down and additionally, the Bank of England has hinted its quantitative easing programme may be altered in the months ahead. With this in mind, investors and the markets are beginning to price in an increase to 0.75 percent before the end of 2022.
Speaking with the Telegraph on this, Michael Saunders, an external member of the Monetary Policy Committee, said the markets could be making the right call.
“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time,” he said.
“But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.
“The February one is fully priced in and for December, it’s half priced in. I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously.”
This is not the first time a member of the Monetary Policy Committee has hinted rises could be on the horizon in recent months. In early September, policymakers at the Bank of England were questioned by the Treasury Committee.
Felicity Buchan, the Conservative MP for Kensington, brought up interest rates following an evenly split vote from the. “Brinkwire Summary News”.