BofE Expected to Raise Interest Rates

BofE Expected to Raise Interest Rates

LONDON (AP) -- The Bank of England is expected to raise its benchmark interest rate Thursday for only the second time since the 2008 financial crisis as it weighs a strong jobs market and high inflation against the growing concerns about the economic impact of Brexit.

Economists forecast that the bank's Monetary Policy Committee will raise the rate from 0.50 percent to 0.75 percent, the highest level since March 2009. Three of the panel's nine members voted to raise rates last month, indicating growing support for an increase.

Since then, economic figures have been mixed. Employment is at the highest since records began in 1971 and inflation is above the 2 percent target, at 2.4 percent. But growth has been weak so far this year, people are not spending much and companies are worried about the lack of progress in Brexit talks, which could see Britain crash out of the European Union without a deal on trade and business ties.

"While it has recently become a closer call, we believe the Bank of England is still more likely than not to raise interest rates," said Howard Archer, chief economic adviser to the EY ITEM Club.

An increase would be the second in the past year, after a hike in November that was the first increase in more than 10 years.

Higher rates would make loans slightly more expensive, weighing on some mortgage holders and businesses looking for credit to invest. The Bank of England is, like the U.S. Federal Reserve and European Central Bank, trying to gradually unwind the easy-money policies it deployed during the financial crisis to keep the economy afloat.

But while the U.S. and eurozone economies have seen strong growth in the past year, the British economy has wilted under the uncertainties of Brexit. A deal is needed by October so that Britain and the EU have new trade rules in place by March next year, when Brexit actually happens. Both Britain and the EU have hardened their negotiating positions, and companies are worried. Major manufacturers like Airbus have warned they could pull their operations out of the country, and drug maker Sanofi says it stockpiling more medicines in Britain in case of customs trouble during Brexit.

And more broadly, trade disputes between the U.S. and major economies is throwing a shadow over the world economy's outlook.

George Brown, an economist at Investec, said he is "fairly confident" the bank will raise rates, forecasting an 8-1 vote in favor. But he expects it to be the only increase this year, as the Bank of England takes a cautious approach.

"We think the bank wants to raise rates in a gradual way and that would be consistent with the next one in February," he said.