Will rates rise before Christmas?

Tim Parker
Posted by Tim Parker
Posted on October 11, 2021 Leave a comment

We are one step closer to potentially seeing a rise in interest rates since the pandemic first began; with Andrew Bailey announcing that the Bank of England is ready to do so, to fight inflation with this possibly happening before Christmas.

For many, this does not come as a surprise, as inflation is surging at a rapid pace with no sign of slowing anytime soon, especially in the run up to Christmas, which historically brings about increased spending, higher demand for food and travel and subsequent inflationary pressure on food and petrol prices. With this being said, the Bank of England has hinted at increased borrowing in 2022 as a more realistic approach, and they hope inflation can be controlled, even with Christmas approaching.

On the 23rd September, the MPC voted to hold the current interest rate of 0.25% and to continue its quantitative easing method; the economy is still fragile - in August, there were more people on furlough than previously thought and with this rescue package stopping at the end of September, this will inevitably plunge many more individuals further into debt. 

So, what can we expect between now and December?

Although the economic situation remains tumultuous, Andrew Bailey used an analogy of the bridge in his ‘The Hard Yards’ speech, to explain that the economy was still grappling with the lingering effects of Covid and had not yet made it out to the other side. This is due to a number of issues slowing the rate of recovery. In addition to supply and demand issues caused by lockdown, the transition after Britain's exit from the EU has meant labour shortages and supply chain issues are harder to address.

According to The Guardian, chief economist at the consultancy Pantheon Macroeconomics, Samuel Tombs, states that “Our sense from the speech is that Mr Bailey leans slightly dovishly and is not going to rush to hike [interest rates], unless the case is overwhelmingly strong,”, suggesting the current state of positive fluctuating rates will be set to continue.

Mr Bailey also addresses the current problems arising in the labour market, admitting that it is unsteady and unpredictable, but is likely to level out shortly. 

To conclude, the MPC are closely keeping an eye on inflation and are ready to ‘step in and adjust monetary policy as needed’. 

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