Advertisement

Will interest rates rise next year?

Inflation is rising, employment is rising, wages are rising. Does that mean interest rates will rise too?

773-inflation

Inflation has edged back above zero. The annual increase in the consumer price index (CPI) climbed to 0.1% in November, from -0.1% the month before. Underlying inflation, stripping out volatile food and energy costs, ticked up to 1.2%. Meanwhile, employment rose further in the three months to September, taking the employment rate to a record high of 73.9%, and lowering the unemployment rate to another post-crisis low of 5.2%. The pre-crisis low was 4.7%, reached in 2005. But the claimant count measure of unemployment ticked up, and annual pay growth eased to 2.4% in October, from 3% in September.

What the commentators said

But perhaps not as long as the market thinks, said Capital Economics: its forward projections of interest rates imply no movement from the Bank until 2017. But overall inflation, even if oil prices stay stable at $40, would be back above 1% by next September as the much bigger falls of 2014 passes out of the annual comparison. Imported goods price inflation should climb too as the impact of sterling's recent strength ebbs. Meanwhile, there are signs that productivity is finally beginning to rise, which implies higher pay.

Advertisement - Article continues below

The weekly wage growth data is stronger than it looks, according to Pantheon Macroeconomics. It has been skewed of late by a slight dip in average weekly hours worked to 32. The Centre for Economics and Business Research, moreover, thinks the national living-wage policy could soon push earningsgrowth back up to an annual 3%.That in turn is set to fuel a 3% real increase in inflation-adjusted household spending, the key driver of growth. So the hawks at the bank "could soon have something to get their teeth into", said FT.com. The upshot? Capital Economics and Pantheon Macroeconomics are both pencilling in the first rate rise for the second quarter of 2016.

Advertisement
Advertisement

Recommended

How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Beyond the Brexit talk, the British economy isn’t doing too badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
UK house prices go into a gentle decline
House prices

UK house prices go into a gentle decline

Halifax’s house price index shows that UK house prices declined for the fourth month in a row in June.
9 Jul 2020
Rishi Sunak: buy a house, do it up and then go for a meal
UK Economy

Rishi Sunak: buy a house, do it up and then go for a meal

The chancellor has been on a spending spree. Will it help?
9 Jul 2020

Most Popular

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?
UK Economy

Can Rishi Sunak save the economy with stamp duty cuts and half-price meal deals?

John Stepek runs his eye over the chancellor's £30bn stimulus package and asks if it's enough to get the economy back on its feet after months of lock…
9 Jul 2020
An economics lesson from my barber
Inflation

An economics lesson from my barber

On reopening his shop after lockdown, Dominic Frisby’s barber doubled his prices. It’s all part of the post-Covid inflation process – and we’re going …
8 Jul 2020
What gold, bonds and tech stocks have in common
Stockmarkets

What gold, bonds and tech stocks have in common

"Risk off" or "safe haven" assets such as gold and government bonds have been doing well lately. But so have riskier tech stocks. That seems to defy c…
10 Jul 2020