Bank of England Split on Rate Hikes

17th of February, 2011 Bookmark and Share
The Bank of England appears still split on whether to increase rates, fuelling concerns that policymakers seeking to fix Britain's ailing economy have become paralysed. Inflation is now at an eight-year high of 4 per cent and this is causing real concern for the ailing economy. The deep divide on the committee suggests the Bank will continue to maintain base rates at 0.5% perhaps till the summer, though several City economists said the surprise move by the recently appointed Martin Weale to join Andrew Sentance in the hawks' camp may have brought an interest rate increase closer.

This view has been strengthened by Santander's chief economist who has called the first rise of interest rates in May. Santander in following this theory have recently re-priced upwards, many of its fixed rate mortgages. The UK lender believes that inflationary pressures are so great that the Bank of England will raise rates as early as May 2011 by 0.25%. The lender also believes further increases will take place in August and November leaving the Bank of England base rate at 1.25% by the end of the year. Santander appears alone in their May call, with most other lenders and commentators calling a rate increase in August, but there is clearly a growing pressure and consensus developing for rates to face an increase in the latter part of the year.
Rob Killeen