Borrowers on both sides of the Atlantic face the prospect of interest rate increases before Christmas, with senior officials at the Bank of England and Federal Reserve suggesting moves in December are on the table. Bank of England deputy governor Clare Lombardelli said a rate rise next month was 'certainly plausible', while US Federal Reserve official Christopher Waller indicated he backed a hike of as much as half a percentage point. The comments signal mounting pressure on households already dealing with the fallout from recent rate decisions, as both central banks seek to bring down inflation that remains well above their 2 per cent targets.
The Bank of England raised its base rate to 4 per cent this month, marking its first increase since August 2023 after months of holding steady amid the conflict in Iran and the energy price pressures it caused. Lombardelli told the Guardian that every meeting is live for consideration of a hike, and that financial markets were pricing December at roughly 50/50 odds. She noted that the decision would depend on what emerges about the conflict, energy prices and wider economic data. Borrowers are now bracing for a potential rise to 4.25 per cent as soon as next month.
Across the Atlantic, Fed governor Waller outlined a hawkish stance in remarks made at a Bank of England conference in London. He said that if core inflation remains elevated, then raising rates by only 25 basis points would 'put our credibility at risk'. Even if monthly inflation improves as expected, Waller said he was 'leaning toward supporting an increase' of 25 basis points at the December meeting. However, he warned that if October inflation data showed core CPI inflation around 0.3 per cent or higher, 'a stronger policy move may be needed'.
A fall in oil prices to below $90 per barrel could provide some relief by easing inflationary pressures if the decline holds. Financial markets remain on edge following last week's midterm elections, which triggered a major technology sector sell-off, leaving investors alert to any signals that central banks are preparing to tighten monetary conditions further.
For UK savers, borrowers and businesses, the prospect of higher borrowing costs before year-end means mortgage repayments and loan interest could rise sharply in the coming weeks, whilst those on savings accounts may see modest improvements in returns.