BUSINESS LIVE: Bank of England expected to hike base rate

Global markets suffered a mass sell-off after the US government’s credit rating was downgraded following a debt ceiling crisis earlier this year.

Credit rating agency Fitch, one of the industry’s ‘Big Three’ alongside Moody’s and Standard & Poor’s, lowered its rating on the US to AA+ from AAA, saying the tussle over the country’s borrowing limit in May could threaten its ability to pay its bills.

The firm also predicted the country’s fiscal situation would deteriorate over the next three years as increased polarisation between the Democrat and Republican parties was likely to lead to further stand-offs in the future.

Rolls-Royce has told investors it expects to pay out £100million this year ‘in respect of the outcome of a legal judgment’.

On other costs ahead, Rolls said: ‘We continue to anticipate a year-on-year headwind of c.£200m associated with legacy Boeing original equipment concessions, an increased £150million adverse impact due to fires at two suppliers’ premises, and a new expected outflow of c.£100million in respect of the outcome of a legal judgment.’

Next has raised its guidance for annual profit by £10million to £845million, after full price sales and the end-of-season summer sale came in ahead of forecasts.

It comes just six weeks after the retailer’s last upgrade and shows shoppers continue to defy tough economic conditions.

Next’s forecast for profits of £845million means they will come in 2.9 per cent lower than it made last year.

Isabel Albarran, investment officer at Close Brothers Asset Management:

‘Given the recent drop in inflation data, we expect to see a 25bps rate hike by the Bank of England today. We believe last month’s surprise double hike was likely an anomaly, an emergency response to the disorderly moves in market pricing of rates and inflation, which have to some degree normalised.

‘However, at a time when the Fed have stepped back from hiking at every meeting and the ECB’s language suggests the Council is considering adopting a similar approach, the Bank of England is a hawkish outlier. When will a break be on the horizon for the UK?

‘The BoE is clearly still concerned about changes to the UK mortgage market, and how this will affect the transmission of monetary policy, and the labour market remains tight. However, super-strong wage growth appears to be lagging falling inflation and broader employment indicators show signs of easing. We will be closely watching the announcement today for any signals that the end of the hiking cycle is near.

‘For assets, confirmation that the Bank is close to the end of hiking will be a boon. We have already seen this dynamic play out in the US, where equity sector behaviour suggests investors are already looking past the peak to expected rate cuts.’

The Bank of England’s Monetary Policy Committee is expected to hike interest rates later today.

Market pricing is currently leaning towards a 25 basis point hike to 5.25 per cent, but some forecasters predict the MPC will instead opt for a bigger 50bps hike to 5.5 per cent.