Interest rate rise is now “an expectation, not a promise”

The Bank of England, Threadneedle Street

The minutes from the latest monthly meeting of the Monetary Policy Committee (MPC), released on 22 April 2015, reveal that the future trajectory of interest rates may be slower than previously anticipated.

Global economic factors and political uncertainty both have a part to play in the revised projections. Though the committee broadly anticipate an increase in the coming three years, the minutes indicate that this is “an expectation, not a promise”.

In order to meet its inflation target of 2%, the MPC reaffirmed its commitment to the policy outlined in last year’s inflation report; notably the intention to ensure that increases in the Bank of England Base Rate (BBR) are gradual and limited. The actual path of the BBR over the next few years is uncertain, though all eight MPC members and Bank of England Governor Mark Carney agreed that it was “more likely than not” to rise over the next three years.

Local and international interest rates have affected forward guidance; both long- and short-term interest rates have fallen in the UK, Europe and USA, suggesting that an increase in the BBR to 0.75% is not “priced in” until Q3 2016. Following this, the MPC expects a very gradual tightening of 0.03% per quarter; however, the trajectory implied by monetary markets is even lower.

At the end of the meeting, the MPC voted unanimously to maintain the BBR at its current level of 0.5%.

Read the minutes of the April 2015 MPC meeting in full.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.