MPC starts to signal rate hikes

The Monetary Policy Committee’s (MPC) policy statement sent a clear signal that higher interest rates are on the horizon. But there were few signs that it is preparing to hike rates soon. What’s more, we continue to envisage inflation dropping back more sharply next year than the Bank expects. As a result, we remain comfortable with our view that policy won’t be tightened for two years yet.
Ruth Gregory Senior UK Economist
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UK Economics Update

Labour shortages to push up wages for a bit longer

The latest data suggest that the upward pressure on wage growth from labour shortages has a bit further to run. Admittedly, the discovery of the Omicron variant has clouded the near-term outlook for wages and the labour market, with higher virus infections and/or tighter restrictions once again a possibility. Nonetheless, our base case is that most of the upward pressure on wage growth will subside from mid-2022, underpinning our view that Bank Rate won’t need to rise as far as investors currently expect.

30 November 2021

UK Economics Update

Omicron – The risks to GDP and for the BoE

The restrictions announced by the government on Saturday in response to the new Omicron COVID-19 variant increase the downside risks to our GDP forecasts and the chances that the Bank of England delays increasing interest rates until next year. And although the worse-case scenario of another lockdown in January could reduce GDP by something in the region of 3.0% m/m, the one morsel of comfort is that the economy has become more resilient to lockdowns.

29 November 2021

UK Data Response

Money & Credit (Oct.)

The rise in consumer credit in October adds to evidence that economic activity fared well at the start of Q4. But that no longer offers much comfort in light of the discovery of the new Omicron variant. While much remains uncertain, the risks to our (already subdued) GDP forecast appear to the downside.

29 November 2021

More from Ruth Gregory

UK Economics Weekly

At risk of stalling, but Q3 may make up for Q2’s weakness

This week brought further signs that the “pingdemic” weighed on economic activity and evidence that in June, consumers amassed excess savings at a faster rate than in May. As a result, there’s clearly a risk Q2 GDP growth will be weaker than we previously thought. However, with the “pingdemic” likely to ease over the next month, COVID-19 case numbers falling and our CE Mobility Tracker and new electronic card payments ticking up, we are sticking with our forecast that GDP will return to its pre-virus peak in October. Even so, it’s clear that any further big gains in activity may have to wait until August.

30 July 2021

MPC 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

UK Data Response

Public Finances (Jun.)

June’s public finances figures provided further evidence that the strong economic recovery is feeding through into lower government borrowing. So despite rising debt service costs, we still think that the economy can do more of the job in “fixing” the public finances than a fiscal tightening.

21 July 2021
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