United Kingdom

BoE set to raise interest rates earlier than expected, says HSBC boss 

The Bank of England is likely to be the first major central bank to start raising interest rates – with hikes on the cards as early as mid-2022, HSBC has predicted. 

Policymakers on Threadneedle Street were initially only expected to start lifting the bank rate from its record low of 0.1 per cent in late 2023 or early 2024. 

But the spectre of soaring inflation is likely to push that decision forward, HSBC thinks, as the central bank tries to keep a lid on the rising cost of living. 

The Bank of England is likely to be the first major central bank to start raising interest rates – with hikes on the cards as early as mid-2022, HSBC has predicted

As the bank released its half-year results, chief financial officer Ewen Stevenson said he thought it was possible the Bank of England’s base interest rate could start moving higher from the middle of 2022. 

While higher interest rates would be bad for borrowers, they would be welcomed by long-suffering savers – and banks, which have been unable to make much money on the cash they lend out. 

The Bank of England slashed interest rates to a record low of 0.1 per cent last year, in response to the pandemic. It hoped to encourage cash-strapped businesses to borrow cheaply, and push households and firms to spend rather than save as the economy stuttered. 

But a debate is now raging within the central bank over when would be the best time to start lifting rates again. Some members of the rate-setting Monetary Policy Committee are worried that hiking rates too early could dampen the economic recovery. 

But others fear that inflation, or rising prices, could spiral out of control if stimulus is left in place for too long. In its latest forecasts, thinktank the National Institute of Economic and Social Research (NIESR) said inflation could hit 3.9 per cent early next year – almost double the Bank of England’s target. 

The Bank of England slashed interest rates to a record low of 0.1% last year

It added that this should fall back to 2 per cent the year after if the Bank started hiking rates, and advised the MPC to ‘prepare the ground for normalising its monetary policy stance’. 

HSBC’s rate hike prediction came as the lender reported a surge in profits for the first half of 2021. It raked in £7.8 billion over the first six months of the year, compared to £3.1 billion a year earlier. 

Last year HSBC squirreled away £4.4 billion to cover loans expected to turn sour – but it released £517 million of that during the first half, as the economy recovered better than expected. This was particularly the case in the UK, where HSBC has its headquarters. 

‘The UK economy has rebounded strongly,’ said chief executive Noel Quinn. HSBC brought back its dividend after the lifting of Bank of England restrictions last month, announcing a 5p-pershare payout totalling £1 billion. The bank gave its bankers a pat on the back too, increasing their bonus pool by 50 per cent to £647 million. It will keep adding to this pile over the year before it pays out the sums next spring. 

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