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UK economy probably shrank for first time in seven years – Bloomberg Survey

The latest Bloomberg survey of economists showed that the UK economy probably shrank for the first time since 2012 in the second quarter of this year.

Key Findings:
“Official data this week is forecast by economists to show growth rebounded to 0.3% in May, after a contraction of 0.4% in April.

Still, such a reading would mean an expansion of 0.8% was needed in June just to return a flat result for the quarter as a whole, according to Bloomberg calculations.

The latest poll follows a dismal week of reports in the U.K., with Purchasing Managers’ Indexes showing the dominant services industry barely growing in June, and both construction and manufacturing sectors suffering outright contractions.

The worsening outlook, both at home and overseas, has also left investors and economists rewriting their calls for U.K. interest rates.”

By Dhwani Mehta

Source: FX Street

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How have UK interest rates changed over time?

UK interest rates: key figures

Date set Rate
Current bas rate 2 May 2019 0.75%
Highest base rate 15 November 1979 17%
Lowest base rate 4 August 2016 0.25%

Who sets UK interest rates?

The UK interest rates are set by Bank of England’s (BoE) monetary policy committee (MPC) by means of a vote. Mark Carney is the governor of the BoE and chairman of the MPC. The meeting happens on the first Thursday of each month, and the announcement is made two weeks after the meeting.

Why is the Bank of England base rate important?

The BoE base rate is important because it influences all other interest rates, including bonds, loans and savings rates. In other words, it affects the interest that you pay to commercial banks from which you’re borrowing money and how much interest you’re earning if you have savings. People often borrow money to pay for property, vehicles, school fees, and more. Because it affects how people spend, it also influences how much things cost. This means that the interest rate is also an important factor in determining inflation. The aim is to keep inflation at around 2%.

In addition, the base rate is important to traders – especially forex traders – because it gives them an indication of currency valuations. If the rate is higher than expected, it often has a positive effect on GBP and if it’s lower than expected, it has a negative impact.

UK interest rate timeline: key events

There have been many key events between 1979 and today that have affected the UK interest rate. They include:

1979: Interest rates rise to a staggering 17% when the Margaret Thatcher administration is appointed. Its aim is to lower inflation, but it also has a severe effect on British manufacturing exports and housing prices.

1992: The UK withdraws from the European Exchange Rate Mechanism and interest rates rise from 10% to 12%. Though the government wanted to raise it even more to increase investors’ interest in the pound, this plan never took off, and the rate was reduced back to 10% in September of the same year.

1997: The Tony Blair administration is elected, and interest rate decisions are handed over to the independent Bank of England. In this year, the interest rate increases to its highest in six years.

2003: Interest rates fall below 4% and worry starts to creep in over inflation. The base rate is effectively increased over the next few years to combat high inflation.

2008 to 2016: The global financial crisis causes the UK interest rate to drop to a low of 0.25%.

2017 to 2019: The MPC decides to increase the base rate to 0.5% and 0.75% soon thereafter. More increases were expected, but Brexit has reduced the chance of this happening any time soon.

Bank of England base rate timeline: 1979 to 2019

Base rate at year end Base rate at year end
1979 17% 1999 5.5%
1980 14% 2000 6%
1981 14.38% 2001 4%
1982 10% 2002 4%
1983 9.063% 2003 3.75%
1984 9.5% 2004 4.75%
1985 11.38% 2005 4.5%
1986 10.88% 2006 5%
1987 8.38% 2007 5.5%
1988 12.88% 2008 2%
1989 14.88% 2009 0.5%
1990 13.88% 2010 0.5%
1991 10.38% 2011 0.5%
1992 6.88% 2012 0.5%
1993 5.38% 2013 0.5%
1994 6.13% 2014 0.5%
1995 6.38% 2015 0.5%
1996 5.94% 2016 0.25%
1997 7.25% 2017 0.5%
1998 6.25% 2018 0.75%

As at 24 June 2019, the BoE Base rate was 0.75%.

How to trade UK interest rate announcements

To trade UK interest rate announcements, you can open a position on forex, UK stocks and indices such as the FTSE 100. These markets are all impacted if the interest rate changes, because the interest rate affects the value of various financial instruments.

By Anzél Killian

Source: IG