NIESR Press Note - ‘First rate increase in 10 years’ Our Comment on MPC decision

Published: 02nd November 2017

 

  • Today the Bank of England’s Monetary Policy Committee voted 7-2 to raise Bank Rate by 0.25 per cent. This is the first rise in the policy rate in 10 years and is likely to be the start of a series of increases.  The Bank has, through its inflation forecasts, signalled that it expects further increases of around 75-100 basis points in Bank Rate over the next three years for inflation to drop to its target rate of 2 per cent. This is broadly in line with NIESR’s latest forecast published yesterday.
     
  • The MPC’s latest GDP growth forecast of 1.6-1.7 per cent is very close to our November forecast. Economic growth is set to remain close to potential, but well below its long run trend levels. Like us, the MPC expects net trade to make a significant contribution to growth.

 

Amit Kara, Head of UK Macroeconomic Forecasting, said “The MPC voted 7-2 for a 25 basis points increase in Bank Rate, thereby reversing one of the three stimulus measures injected by the Bank last August in response to the EU referendum result. The economy has performed better than the Bank’s post-Referendum forecast with economic growth stronger and unemployment lower. Inflation however, has exceeded the target and is now set to rise above 3 per cent in October. Although better-than-expected, economic growth overall is subdued compared with history.

The MPC has also signalled a gentle rate hiking path that is similar to our forecast published yesterday. We expect the policy rate to rise by 25 basis points every six months until the Bank Rate reaches 2 per cent in 2021.

 

Note: NIESR’s latest quarterly forecast (published 1st November 2017) projects GDP growth of 1.6 per cent per annum in 2017 and 1.7 per cent in 2018 (see here for the associated press release).

 

 

ENDS

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Notes for editors:

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