Bank of England interest rate decision preview

Andrew Prosser, head of investments at InvestEngine, looks ahead to the Bank of England’s interest rate decision on Thursday.

He said: “A UK rate rise this Thursday would be a surprise, but it is no longer an implausible one.

“The broad consensus is that the Bank of England Base Rate will remain at 3.75 per cent, but there is now roughly a one-in-four chance of a 0.25 per cent increase.

“At its last meeting, the Bank warned that higher energy prices could push inflation back up later this year. With tensions once again escalating in the Middle East and the knock-on rise in oil prices, the key question for policymakers is whether this price shock will prove temporary or become embedded in wider inflation.

“The prospect of keeping interest rates higher for longer has in part fuelled recent bond sell-offs, creating an unwelcome backdrop for Chancellor John Healey ahead of his first Budget.

“Even small movements in the bond market over the coming weeks, coupled with elevated oil prices, could leave him with significantly less fiscal headroom to fund spending pledges, raising the prospect of further borrowing or tax rises.

“There has also been some spillover into equity markets, as investors digest the prospect of higher-for-longer interest rates and more expensive energy. But it’s important to remember that global markets remain comfortably higher over the year to date.

“While recent volatility reflects concerns about inflation, interest rates and government finances, for long-term investors, periods like this are a reminder not to make knee-jerk decisions, but to stay focused on the benefits of remaining invested over time.”