On Thursday the Bank of England's Monetary Policy Committee will meet and vote on the official Bank rate among other policy measures. The Pound's interest rate has sat at 0.1% since the Coronavirus pandemic began in March of last year. However as the economy continues to recover and spending increases there are many factors that have changed since the MPC's last meeting in September that could point towards a change in the base rate.
Inflation and Consumer Prices
The latest release showed inflation has reached 3.1% in the year to September and is expected to increase further because of rising energy costs and high job vacancies resulting in higher wages that are getting passed on to consumers. The Bank of England have said they expect inflation to exceed 4% by the end of the year and its governor even said that they "will have to act" giving the biggest hint that the base rate will change yet.
Supply and Demand Influencing Factors
Last year the government spent more money than it had in any year since the second world war. However because of a lockdown and all non-essential shops being shut the majority of this money had not been spent by the people and companies receiving this money. Now the economy is fully opened up and as Christmas approaches, people are starting to spend at far higher rates.
Broadly, the UK’s current supply chain issues stem from global shortages of materials, staff shortages and transport delays occurring at the same time as sharp spikes in demand. Most factories and production plants have been closed or producing at a far slower rate over the last year so that asking them to suddenly to keep up with high levels of demand is near impossible.
Conclusion
Going into Thursdays meeting the committee members will be well aware that after this weeks meeting, the next chance they will get to hike interest rates will be in February. Its a common occurrence for price rises to accelerate around Christmas, more so this year with the chronic supply shortages. So by February it would be too late to try and limit these rises.
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