Introduction: Bank of England sets interest rates today
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:
Andrew Wishard, senior UK economist at Berenberg, predicts the decision will be almost unanimous:
The agenda
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
1.30pm: US jobless claims report
Gas prices drop too
More succour for the Bank of England, and hard-pressed households!
Gas prices are dropping this morning, with the month-ahead UK gas price down 2% at 214.2p a therm.
That’s the fourth daily fall in a row, after prices hit their highest level in almost four years last week.
However, this still leaves wholesale gas prices more than double their level before the Iran war began.
Europe’s oil & gas stocks are down 2% this morning, at a one-month low.
That follows yesterday’s slump in the oil price, which accelerated after US vice-president JD Vance blamed the Iran war for the Republican’s dire Midterms performance.
FTSE 100 hits three-month high
Boom! The London stock market has hit a three-month high at the start of trading.
The blue-chip FTSE 100 share index has jumped by 119 points, to 10,948 points, as global stock markets continue to welcomed the strong win by the US Democrats in the Midterm elections.
That’s on top of Wednesday’s 190 point leap, and puts the Footsie close to the record high hit at the end of July.
It means the index has gained around 10% this year, having hit 10,000 points for the first time back in January.
European stock markets are also higher this morning, with France’s CAC 40 jumping by over 1%.
There’s quite a lot of corporate news for the markets to digest this morning.
Next have beaten City expectations by reporting an 8.1% rise in full-price sales in the third-quarter of the year. The retailer said that “all of the sales over-performance came from our international business,” with the UK growing rather slower.
Rival retailer ASOS cheered investors by saying trading in recent weeks had been encouraging. It forecast annual adjusted core profit above market expectations, despite a recent cyber attack.
In the housebuilding sector, Vistry said this morning it has begun reducing headcount, ancd cautioned that housing demand remains subdued.
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:
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%.
They told clients:
Looking at the latest money market pricing, a UK interest rate rise today is seen as a 98% chance.
Oil trading near two-month low
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:
Introduction: Bank of England sets interest rates today
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:
Andrew Wishard, senior UK economist at Berenberg, predicts the decision will be almost unanimous:
The agenda
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
1.30pm: US jobless claims report
