Base Rate  

Bank hints base rate may peak around 1.5%

Bank hints base rate may peak around 1.5%

The Bank of England expects the base rate to peak at a lower level than in the past, and place the UK economy much closer to that of the Eurozone than the US, according to Neil Birrell, chief investment officer at Premier.

He was commenting in the immediate aftermath of the Bank of England’s Monetary Policy Committee (MPC) voting by a majority of six to three to keep the base rate at the present level of 0.5 per cent.

The decision to keep rates at that level was not a surprise, with the swaps market having priced in just a 3 per cent chance of Bank of England action this month.

The decision of the Bank’s chief economist Andy Haldane to vote in favour of a rate rise caused sterling to gain almost a cent against the dollar.

Bur Mr Birrell said the greater guidance for advisers and wealth managers came in the commentary that accompanied the statement on how the MPC voted.

The commentary stated quantitative easing would only begin to come to an end when the UK base rate increases to 1.5 per cent.

The central bank had previously stated it would only begin to unwind quantitative easing when the base rate hit 2 per cent.

A downward revision of this target, in Mr Birrell’s opinion, means the Bank of England now expects rates to not move much above 1.5 per cent.

Russ Mould, investment director at AJ Bell, said the Bank of England’s reluctance to raise the base rate right now is the result of the central bank lacking confidence in the prospects for UK economic growth, and so will keep rates lower, as the Eurozone is doing, rather than raise the rate in a rapid sequence, as the US Federal Reserve has done.