by Shaloo Shrivastava
BANGALORE (Reuters) – The Bank of England (BoE) is expected to raise its main policy rate by 25 basis points on September 21 to its highest level in more than 15 years, a Reuters survey of economists showed. some of which consider a further increase in the cost of credit possible before the end of the year.
British inflation, which peaked at 11.1% last October, before falling to 6.8% in July, remains among the highest of the world’s major economies and far from the 2% target of the BoE, despite a cumulative increase in interest rates of 515 basis points since December 2021.
Almost all of the 65 economists polled by Reuters September 11-13 expect the BoE to raise its key interest rate by 25 basis points to 5.50% this month, a forecast in line with that of the walk. Only an economist predicts a status quo.
“Service price inflation has not really tipped yet and we think the Bank of England will want convincing evidence that it is falling,” said Ellie Henderson, economist at Investec.
“We think the Bank of England will want to continue to tighten the screw a little longer,” she adds.
The median of economists’ forecasts in the survey shows the main policy rate is expected to peak at 5.50%, also in line with market expectations, and remain there until mid-2024.
Nearly half of the economists surveyed, or 30 out of 65, however expect it to rise to 5.75%, or even beyond, in the fourth quarter. Two economists expect a final key rate of 6.00%.
“If the BoE wants to signal that this is the last (rate) hike, it might be tempted to change its ‘guidance’ (evolution of its policy) towards something more neutral,” write HSBC economists .
“But there remains some uncertainty: the MPC (BoE Monetary Policy Committee) will only have one new publication on hand on the labor market and inflation between next week’s meeting and the next , on November 2,” they add.
INFLATION ABOVE 2% UNTIL 2025
BoE officials themselves seem divided on the extent of the rate hike.
Its governor, Andrew Bailey, said last week that the central bank was “much closer to peak rates,” while not ruling out a hike in September.
Catherine Mann, known for her restrictive stances at the central bank, said on Monday it was better for the BoE to err by raising rates too sharply than to end them prematurely.
UK inflation is expected to average this quarter and next quarter at 6.8% and 4.7% respectively, and is expected to remain above the BoE target at least until 2025. The economy, for its part, should grow this year by 0.4% and 0.5% next year.
Despite a stronger-than-expected contraction in gross domestic product (GDP) in July, the 8.5% annual rise in wages over the three months to July could help support demand and, by extension, fuel pressures inflationary.
Asked to comment on a subsidiary question, all but two of the economists surveyed said the risks to their inflation forecasts were on the rise.
(Reporting by Shaloo Shrivastava; investigations by Anitta Sunil, Purujit Arun, Maneesh Kumar and Pranoy Krishna; Writing by Ross Finley, Hari Kishan and Mark Potter, Claude Chendjou for the French version, editing by Blandine Hénault)
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