On 2 August 2018, the Bank Of England raised interest rates from 0.5 per cent to 0.75 per cent. The previous base rate rise was in November 2017, from 0.25 per cent to 0.5 per cent, which was the first raise for more than a decade.
Mark Carney, governor of the Bank of England, said in August 2018 there would be further “gradual and limited” rate rises in the future.
In March 2018, the UK Office for Budget Responsibility (OBR) foresaw interest rates rising slowly through 2018 and into 2019.
Interest rate/Bank of England rate forecast 2018-23*
|Bank rate forecast %|
Source: UK Office for Budget Responsibility, 27 March 2018
In its Economic and fiscal outlook from March 2018 the OBR said: “Since our November  forecast, average mortgage rates are little changed. Our forecast shows mortgage rates rising gradually from the first quarter of 2018, reflecting increases in Bank Rate partly offset by falling margins. Although bank funding costs have fallen somewhat since November, this effect is outweighed by the higher profile for Bank Rate, so that we now expect a marginally higher path for mortgage rates. By the first quarter of 2023, we expect the effective mortgage rate to reach 3.0 per cent, above the 2.6 per cent forecast in November. It stood at 6.0 per cent in the final quarter of 2007, before the crisis.“
However, some have been more bullish about potential rate rises, although those predictions have come with caveats. For example, Andrew Sentance, former Bank of England Monetary Policy Committee member, predicted in May 2017 that interest rates could rise to 2 or 3 per cent by the early 2020s.
Now senior economic adviser at PWC, Sentance was speaking at a Building Society Association conference in London, and also estimated that the UK will lose about 3 per cent of GDP by 2020, compared to where the country would have stood without Brexit.
“Inflation has now caught up with wage growth causing a sharp consumer slowdown,” said Sentance. “The weak pound has also squeezed consumers and the expectation is that households will adjust their spending.”
However, he said that the UK economy would recover following weakness after the Brexit vote, with “reasonably healthy growth for 2017 and 2018, based on current forecasts.”
But he added that if EU negotiations do not go well, this could “prolong disappointing growth into the early 2020s.”
Sentance told the conference that he believes inflation will rise “to around 3 per cent or higher later this year” and that interest rates “should follow the US policy of gradual rises” to reach 2 to 3 per cent before 2024.
This article was last updated on 7 August 2018.