Commenting on today’s 0.5% interest rate rise from the Bank of England, Chris Arcari, Head of Capital Markets, Hymans Robertson says:

“Since the last Monetary Policy Committee Meeting in early November, pressure on the Bank of England to maintain market confidence has abated somewhat and, while further rate rises are priced, the extent of further rises expected has fallen dramatically compared to those seen in the wake of the now infamous “mini” budget.

“The market is pricing with near-certainty a 0.5% p.a. rate increase on Thursday, a step down from the recent 0.75% p.a. increase, with rates expected to peak around 4.7% p.a. next summer. Despite recent growth outturns surprising to the upside, tentative signs of weakening labour demand and likely near-term economic weakness probably provides major central banks just enough justification to ease the pace of rate increases. However, wage growth remains strong, with average weekly earnings rising 6.1% year-on-year in October, and the Bank of England are likely to err on the side of caution with stickier core inflation likely making the MPC less likely to start cutting rates towards the end of next year than the market expects, even if economic output is faltering. Put another way, rates may peak at a lower level than markets expect, but may stay there for longer.”