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Will UK Raise Rates This Week?

The Bank of England should raise interest rates this week but also tell the public it will be ready to make a U-turn if Brexit talks sour or trade tensions with the United States escalate.

The National Institute of Economic and Social Research (NIESR) stuck to its forecast for British economic growth of 1.4 percent this year and 1.7 percent next year, though this assumes a softer Brexit than Prime Minister Theresa May is aiming for.

The BoE should raise rates this week for only the second time since the global financial crisis, as even the modest economic growth ahead is likely to generate inflation.

To date, the BoE has said it expects interest rates to rise at a gradual and limited pace, assuming Brexit goes smoothly. BoE Governor Mark Carney has also said rates could be cut in some scenarios if there is a disorderly Brexit.

Britain is due to leave the EU on March 29 next year but May has not finalised a transitional deal and her ministers agreed on negotiating demands for a longer-term trade relationship only in July – more than two years after Britain voted to leave the EU.

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