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BoE Watch

BoE Watch

Rates heading to 3.0% as MPC focuses on inflation concerns

The weakening economic outlook has deepened the dilemma facing the Monetary Policy Committee (MPC). But we think the MPC is sufficiently worried about rising price/wage expectations to raise Bank Rate from 0.75% to 1.00% on Thursday 5th May and to start shrinking the balance sheet quicker by selling gilts. Based on our forecast that the labour market will be tighter and that wage/price expectations will be more persistent, we expect the MPC to hike rates to 3.00% in 2023. That’s above the peak priced into the markets (2.50%) and the peak expected by a consensus of economists (2.00%). UK Drop-In (Thurs. 5th May, 15:30 BST): Paul Dales and Ruth Gregory will be discussing our UK Economic Outlook, including our above-consensus call for UK interest rates, in a 20-minute online briefing after the May MPC meeting. Register now

28 April 2022

BoE Watch

War won’t derail the MPC’s rate hiking plans

The economic consequences of the war in Ukraine have worsened the already tricky mix between soaring inflation and slowing GDP growth. But we think the Monetary Policy Committee (MPC) is sufficiently worried that higher inflation is feeding into price and wage expectations to raise Bank Rate from 0.50% to 0.75% on Thursday 17th March. What’s more, a tight labour market may well mean the MPC eventually raises rates to 2.00% next year.

10 March 2022

BoE Watch

February rate hike, and three more on the way in 2022

The further surge in inflation coupled with the rapid tightening in the labour market will probably prompt the Monetary Policy Committee (MPC) to raise interest rates from 0.25% now to 0.50% on Thursday 3rd February and begin quantitative tightening (QT). We now expect the MPC to hike rates four times to 1.25% by the end of 2022, above the level of 0.75% expected by most economists this year.

27 January 2022
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BoE Watch

Omicron to stay MPC’s hand, but won’t prevent 2022 lift off

We wouldn’t completely rule it out, but we no longer expect the Monetary Policy Committee (MPC) to raise interest rates from 0.10% on Thursday 16th December. We now think rates will rise to 0.25% in February and to 0.50% in May. But if the COVID-19 restrictions were ramped up, rates may not be raised until the second half of 2022. As a result, we have grown more confident that investors have gone too far in pricing in rates rising to almost 1.00% by the end of 2022.

9 December 2021

BoE Watch

BoE fast out of the blocks on rates, but won’t go the distance

We now think there’s a high chance that the Monetary Policy Committee (MPC) will raise interest rates from 0.10% to 0.25% at the meeting on Thursday 4th November. It may then raise rates to 0.50% in February, if not in December. But we think investors are wrong to price in interest rates rising to 1.25% by the end of next year.

BoE Watch

Slowing recovery eases pressure to hike

The Monetary Policy Committee (MPC) signalled in August that it is getting closer to raising interest rates, but the gloomy tone of the recent news on the global and UK economies will have reduced the pressure on the MPC to tighten policy. So a rate rise this month doesn’t seem likely. Admittedly, if the recovery regains some pace, it is easy to see some MPC members voting for a rate hike in early 2022. But if we are right in thinking that the bulk of the shortages will prove temporary and that inflation will fall back almost as sharply next year as it rises in 2021, then we think the MPC won’t vote to raise rates until 2023.

BoE Watch

Divisions emerge, but early end to BoE’s asset purchases unlikely

While the Bank of England will upgrade its near-term forecasts for inflation in its Monetary Policy Report (MPR) published on 5th August, it will probably still judge that the rise is transitory. And while Monetary Policy Committee (MPC) member Michael Saunders may break ranks to vote in favour of an early end to the Bank’s net asset purchases, we do not think others will join him in signalling that interest rate hikes are drawing closer.

29 July 2021

BoE Watch

No tightening until 2024, and then by unwinding QE first

Even though the Monetary Policy Committee (MPC) will probably acknowledge in the policy announcement on Thursday 24th June that activity and inflation have been stronger than it expected, we don’t think it will suggest it is any closer to tightening policy. While the markets expect that policy will be tightened in late 2022, we don’t think the MPC will get to that stage until 2024. And when it does, we suspect it will unwind some quantitative easing before raising interest rates in 2025.

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