The expected interest rate hike of twenty-five basis that will be announced by the Bank of England Governor later this morning, while being something of a disappointment to those who see the economy falling into recession in the coming months, will still leave interest rates at a supportive level.

The neutral rate in the UK is between 1.5% and 2.5%. That is double the level that the base rate will be at, at the end of the day.

Hawkish MPC member Michael Saunders, who will leave his role as an external member of the MPC in September, commented recently that he believes the neutral rate to be a little over 2%.

Given that today’s hike will take interest rates to their highest level in fourteen years, and the economy has changed immeasurably since rates were averaging around 5%, any estimate of the neutral rate is little more than a guess.

It is difficult, and unprovable at what point interest rates stop stimulating growth and start to restrain demand.

Beyond Currency Market Commentary:

Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.