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BoE Watch

BoE Watch

Stepping up the fight

We expect the Monetary Policy Committee (MPC) to step up its fight against high inflation at its meeting on Thursday 4th August by raising interest rates by 50 basis points (bps), from 1.25% to 1.75%, rather than repeating the recent 25bps hikes. What’s more, the MPC may imply that it is willing to raise rates by 50bps at future meetings if there are no signs that domestic price pressures are easing. That would support our view that interest rates will peak at 3.00% rather than the analyst consensus of 2.00%. We will be responding to the MPC’s announcement and answering questions from clients in a “Drop In” webinar at 3.30pm BST on Thursday 4th August. (Register here.)

28 July 2022

BoE Watch

Joining the 50bps club

The further tightening in the labour market, the additional loosening in fiscal policy and more evidence that the weaker activity outlook is not reducing price and wage expectations lead us to believe that the Bank of England will raise interest rates by 50 basis points (bps), from 1.00% to 1.50%, at the policy meeting on Thursday 16th June. Even if we’re wrong (it is a very close call) and the Bank sticks to a 25bps hike, recent developments support our view that rates will rise to a peak of 3.00% next year. Clients can question our thinking during our live Drop In webinar on Tuesday 14th June at 3pm BST. (Register here.)

9 June 2022

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
More Publications

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

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.

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