Bank of England expected to raise interest rates for first time in three years today – business live

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Predicting a central bank’s actions can be risky, but there will certainly be surprise in the City of London today if the Bank of England doesn’t raise interest rates at midday.

The BoE is widely expected to announce its first increase in UK interest rate in more than three years, at noon today. A quarter-point rise would take Bank Rate up to 4% from 3.75%.

With inflation rising faster than the Bank’s target, most of its policymakers are expected to decide now is the moment to tighten monetary policy. This, they might hope, would dampen the risk that high energy costs spill over and push up the cost of other goods and services.

The Bank hasn’t hiked borrowing costs since August 2023, when bank rate hit 5.25%.

It will also be playing ‘catch-up’ with other central banks – rates have already risen in the US, Japan, the eurozone, Australia and Canada this year.

Peder Beck-Friis, economist at bond trader PIMCO, says a hike to 4% is “fully priced by markets,” explaining:

The BoE is primarily responding to higher energy prices, but macro data have also turned more hawkish.

Growth has been resilient, the labour market has stabilized, and core inflation has edged higher. However, the economy does not look overheated, and pass-through from higher energy prices into core inflation has been modest overall.

Andrew Wishard, senior UK economist at Berenberg, predicts the decision will be almost unanimous:

We expect an 8-1 vote in favour of the move, with only Alan Taylor dissenting. Although several rate setters will vote for the hike reluctantly, developments in the real economy justify it. Strong economic growth and a tentative stabilisation of the labour market suggest that an interest rate hike will restrain economic activity only modestly.

9am GMT: UK car sales report for October

9.30am GMT: UK construction PMI for October

Noon GMT: Bank of England interest rate decision

12.30pm GMT: Bank of England press conference

Today’s decision is an opportunity for the Bank of England to push back against market expectations for several rate rises in 2027.

Currently, the money markets are pricing in up to three rate rises next year, on top of one at noon today.

Many economists think this is unlikely, though.

A second rate hike in February, to 4.25%, is generally anticipated, though, as James Smith of ING explains:

Another rate hike in February seems to be the growing consensus – and our own view too. There’s little precedent for ‘one-and-done’ rate rises. But it’s one thing thinking that, another saying it out loud.

There’s a lot that can happen between now and February. And having made a hawkish misstep all the way back in March, when the Bank sounded open-minded about tighter policy, opening the floodgates for markets to price in rate hikes, it’ll want to tread carefully here.

Deutsche Bank analysts predict the Bank of England’s monetary policy committee will split 6-3 in today’s vote, with a majority voting for a rate hike to 4%.

[The committee is split between hawks (who want higher rates to fight inflation), and doves (who fear higher rates will hurt economic growth).]

Deutsche Bank also predict the Bank’s latest economic forecasts will show inflation rising as high as 4.25% by the first quarter of 2027, along with an upgrade to the 2026 growth forecast to 1.4%.

We expect the Bank of England’s patience to have run out with the unfolding energy shock. Stronger growth has led to a stabilising labour market. Excess capacity may be less than previously thought.

Looking at the latest money market pricing, a UK interest rate rise today is seen as a 98% chance.

The Bank of England will be reassured to see that the oil price has tumbled this week.

Brent crude fell through the $100 a barrel mark yesterday, hitting its lowest level in two months, and this morning is trading around $95 a barrel.

Traders appear to be concluding that Donald Trump might try to deescalate the Middle East conflict after his Republican party was hammered in this week’s midterms.

Nothing is certain, though, as Kyle Rodda, senior financial market analyst at Capital.com, explains:

Peace talks are in rhetoric alone currently. Meanwhile, it’s feared an increasingly lame-duck President Trump could become more active (and arguably reckless) in foreign policy as he seeks to influence policy at a time when there are fewer self-interested reasons to show restraint.

For now, market participants are pricing out the geopolitical risk premium that had been baked into the market leading into the midterms on fears the US would launch fresh strikes after the election.