When will interest rates rise?

Interest rates remain unchanged in March

The Bank of England held interest rates at 0.5%, as expected. This means that borrowing costs have been at a record low and today’s decision marks exactly a two year unchanged base rate. Markets had estimated a 10% chance that rates would be raised in March.

Last month the number of members calling for a rate rise increased to three. Since then, much has occurred. In February Mervyn King predicted that the consumer prices index will rise to 5% in the coming months and the Libyan oil crisis certainly hasn’t helped matters.

Studies today show that the private sector take home pay growth is at its lowest rate on record, there is added weight to the Bank of England governor’s own view that UK households are currently being subjected to the most prolonged squeeze on real incomes.

The above situation places the MPC between the proverbial rock and a hard place, with a rate rise increasing pressure on households but a lack of action enabling inflation to run wild.

Alan Clarke, UK economist, BNP Paribas comments:

We have revised our forecast for the first rate hike – we now expect the first hike in May (previous forecast was August). The main reason for that is we now expect consumer price index inflation to hit 5% year-on-year before the end of the year given food and energy price increases.