Interest rate rise edges ever closer

Thursday sees the latest announcement from the Monetary Policy Committee (MPC) regarding interest rates. If, as expected, the MPC votes to keep rates at 0.5 per cent for another month, it will be two years since we saw a change in rates.

While that’s an incredibly long time, it is unlikely to go on for much longer. Pressure is growing all the time on the MPC to raise rates to keep inflation in check. It seems inevitable that sooner rather than later it will have to take the plunge to maintain its credibility. However, the consensus view is that May is increasingly likely as the month when the MPC will make the move.

Why May? Well, in the minutes of the February meeting it said that those members who didn’t vote for a change want ‘to see indicators of how the economy performed at the start of the year’ before they are convinced. This suggests they want to see data for growth for the first three months of 2011 and the new Inflation Report forecasts before making the decision to raise rates. This suggests May at the earliest.