According to some reports today, there is still an 80% chance of an interest rate hike in the UK at November’s Bank of England policy meeting.
Data yesterday revealed that inflation is now way past the 2% target set by the Bank of England. However, wage and employment data released today posed a tough question as to whether the Bank of England will raise interest rates anytime soon.
Is a rise in the interest rate a good thing?
The latest wage data showed that in essence, the cost of items are going up and people’s earnings aren’t. This means that households have less income to spend. Mark Carney, Governor of the Bank of England, will now face a difficult question as a rate hike is likely to put poorer families at risk even further.
Higher interest rates are likely to help dampen spending, as people are more likely to want to save money due to the increased attractiveness of interest levels. The latest data showed that people will have less money to save due to the squeeze on households, meaning that the Bank of England are between a rock and a hard place.
Recent consumer debt and borrowing figures have hit record levels, a rise in the interest rate may leave thousands of people unable to repay loans which would in-turn slow the UK economy further. This is not something that the Bank of England will want considering the potential impact of Brexit in the coming years.
This level of uncertainty was mirrored when Mark Carney spoke to the Treasury Committee on Tuesday evening, by almost completely avoiding any hints as to whether the Bank will raise rates anytime soon. One thing is certain is that the Pound is likely to be volatile, in particular I’d expect any commentary or opinion from other MPC members to cause the Pound to jump considerably. Interesting times could be ahead for the UK.