Bank to raise rates twice this year, economists say

Analysts increase growth forecasts and add: ‘We’re over the worst’

The Bank of England is expected to raise interest rates twice this year after a surprisingly strong showing from the economy at the end of last year and a brightening outlook in 2018, leading economists say.

Although the Bank’s rate-setting monetary policy committee seems almost certain to keep its rate at 0.5 per cent when it meets on Thursday, it is widely expected to display a hawkish shift in outlook by leaving the door open to a rise in May. Many economists expect a further rise in November.

The shift comes with the economy appearing to be on a modestly firmer footing for the first time since the vote to leave the European Union in June 2016. After the economy grew by 0.5 per cent in the last three months of 2017, up from 0.4 per cent in the third quarter and better than expected, the Bank is expected to upgrade its growth forecasts this week.

The EY Item Club, a forecasting group that uses the Treasury’s own model of the economy, is nudging up its own forecasts for growth in GDP, a measure of the total of what is produced, spent or earned. It expects growth of 1.7 per cent in 2018, up from its previous forecast of 1.4 per cent, adding that it believes the economy is “over the worst”. It expects the Bank to increase rates twice this year as it moves “towards normalising monetary policy”.

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