Interest rates set for faster rise as Brexit weighs on Britons' prosperity

After November's first rate rise in a decade another is expected in May

James Moore
Chief Business Commentator
Thursday 08 February 2018 17:11
Comments
Bank of England governor Mark Carney
Bank of England governor Mark Carney

The cry of the hawk could be heard over the cooing of dove when the Bank of England's governor Mark Carney unveiled his Monetary Policy Committee's inflation report and interest rate decision.

The latter saw rates kept on hold, but having increased them for the first time in a decade in November another rise will now come “somewhat earlier” even with the UK “decoupling” from the booming global economy with its preparations for the hari-kari of Brexit.

The MPC wants to put a lid on the inflationary pressure it sees building even with Britain languishing in the world’s slow lane, where it will remain for the foreseeable future.

It thinks that the country’s previously stagnant wages will rise faster than some have predicted. The comfort those who have borrowings will feel from that will inevitably, then, be tempered. Britain’s borrowers have a welter burden of debt, and it has been expanding at a rapid rate.

It would be a shock were the first rate rise not to come in May, and neither this MPC nor this governor like to shock. A second may occur later in the year with another further on out.

All this could present a problem for increasing cult-like band of hard right wing Brexiteers holding the wretched Conservative Government to ransom.

It has been noted that the noisy debate about the dire economic prospects for the country revealed by the economic modelling that Government has tried so hard to keep a lid on has little resonance outside the Westminster and City of London bubble.

Vast amounts of money are set to be lost in terms of tax revenues, investment, wages, jobs and more besides. But when this is expressed in terms of forecasts and modelling that are subject to change, even when they are dire, it means little when set against the pay packets, bills and mortgage payments of the man and woman on that famous mythical omnibus running down the road in Clapham, and in the other Claphams up and down the country.

The Brexit Pravdas masquerading as once proud newspapers may choose to big up the Bank of England’s latest growth forecast, which, at 1.8 per cent for 2018 has been upgraded and is rather more optimistic than those of international bodies such as the OECD and the IMF, both of which expect Brexit to have a more adverse impact on the economy. They may also point out that the Bank's 2019 and 2020 forecasts have been raised, although only by a little.

A Remainer such as myself might note that the upgrades are predicated on Brexit going smoothly and that the Government’s conduct of this deranged process has been anything but to date.

What really counts is how the mass of individuals in the UK feel about their prospects and their prosperity.

If the squeeze that they have been labouring under continues, or if they feel the pinch from higher interest rates, the already shaky claims of the Brexiteers will come under an increasingly harsh spotlight, and their increasingly shrill attempts to blame others for what they have wrought will look increasingly weak.

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