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GDP Growth Figures Raise Expectations of Interest Rate Increase

Written by: Keith Tully

Reviewed: Friday 27th October, 2017

GDP Growth Figures Raise Expectations of Interest Rate IncreaseThe latest official figures on growth within the UK economy showed faster-than-expected expansion in the third quarter and have raised expectations that the Bank of England will now opt to increase interest rates in the near future.

Many experts are now tipping the bank to increase its base rate of interest in November for the first time since 2007 in a move that would add to the cost of borrowing for millions of consumers and businesses across the country.

The Office for National Statistics (ONS) has reported that the UK’s GDP grew by 0.4 per cent in the third quarter, which represents a slight increase on the comparative figure for the second quarter of the year and improvement on the 0.3 per cent that most economists had been expecting to see.

A near-term rise in interest rates could be an important consequence of that better-than-expected nationwide GDP performance because it may give the Bank of England scope to raise borrowing costs as a means of dampening inflation without derailing economic growth.

According to the ONS, the headline rate of inflation across the country stood at 2.8 per cent in September 2017 and has been consistently above the Bank of England’s target figure of 2 per cent for much of this year.

Prior to the Credit Crunch of a decade ago, the Bank of England had its base rate of interest set at over 5 per cent but gradually lowered it as the Financial Crisis unfolded in 2008.

By March 2009, the base rate was as low as 0.5 per cent, where it remained for more than seven years until rates were trimmed down to their current level of 0.25 per cent in August 2016.

The Monetary Policy Committee, which decides what should happen to interest rates on behalf of the Bank is scheduled to meet in early November.

It is now widely expected that the committee’s decision will be to vote in favour of the first rise in the cost of borrowing this decade.

Commenting on the situation, Ruth Gregory from the consultancy firm Capital Economics said this week that the ONS’ GDP growth figures “probably sealed the deal on an interest rate hike next week”.

Keith Tully

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Keith Tully
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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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