Comment by Luke Bartholomew, Aberdeen Standard Investments

“The Bank of England’s meeting next week comes at a potentially awkward moment for the UK economy. With growing evidence that inflationary pressures are mounting at the same time that growth is slowing, the Bank may be facing a trade-off over which factors it prioritises.

Speculation is mounting that the Bank will start to increase interest rates next year. We think the current bout of higher inflation will prove to be transitory and that unemployment may increase around the end of furlough which could stay the Bank’s hand. But the Bank will need to signal to markets quickly if it thinks current hiking speculation has gone too far, otherwise it risks these predictions having a certain self-fulfilling logic.

The other interesting thing to watch out for will be how the new members of the Bank’s decision-making body – Catherine Mann and newly appointed Chief Economist Huw Pill – use their votes. A vote against the committee’s majority in their first meeting is unlikely, but any hints to their future voting intentions will be watched closely.

All this means that investors will need to follow Bank communication carefully over the next few months, and brace for some volatility if we are indeed starting the rate hiking cycle next year.”