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.
Paul Dales Chief UK Economist
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UK Data Response

Public Finances (Dec.)

Stronger tax revenues were just enough to offset big rises in debt interest costs in December. But we don’t expect this to last: further rises in inflation will mean borrowing soon overshoots the OBR’s forecast. Even so, our forecasts suggest the Chancellor still has enough fiscal space to cancel April’s rise in NIC taxes. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

25 January 2022

UK Data Response

IHS Markit/CIPS Flash PMIs (Jan.)

The third consecutive decline in the composite PMI indicates that the Omicron variant weighed further on activity in January. But the recent fall in COVID-19 cases, relaxation of restrictions and signs of easing supply shortages suggest the economy will recover quickly. And, given signs of accelerating price pressures, we still expect the Bank of England to hike interest rates a week on Thursday. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.  

24 January 2022

UK Economics Weekly

Economy less favourable for whoever’s in Number 10

Although it is hard to predict whether by the end of next week Boris Johnson’s reign as Prime Minister will be solidifying or crumbling, we know that whoever is in Number 10 over the next year will have to deal with the cost of living crisis. Our forecast that inflation will rise to a little above 7% explains why we think GDP growth this year will fall short of the consensus forecast and why we think interest rates will be raised further than most expect, from 0.25% now to 1.25% by the end of the year. Drop-In (14:00 GMT, 26th Jan): UK Outlook -- More inflation, more interest rate hikes. Join our UK Economics team for a briefing on the 2022 outlook, including why we’re below consensus on growth but think the BoE will raise rates more than most expect. Register here.

21 January 2022

More from Paul Dales

UK Economics Update

CPI inflation may peak around 4%

Bigger rises in commodity and component costs than we had expected mean that we now think CPI inflation will rise from 2.1% in May to a peak of about 4.0% around the turn of the year. But we still think this will be a short, sharp spike in inflation that won’t feed into persistently faster pay growth or higher inflation expectations for a couple of years yet. As such, we suspect the Monetary Policy Committee will look through it and won’t tighten policy as soon mid-2022 as the financial markets expect.

6 July 2021

UK Data Response

GDP (Q1 Final)

The small downward revision to Q1 GDP growth probably won’t stop the economy from rising back to its pre-pandemic peak in the coming months. And the larger-than-expected rebound in the household saving rate increases the potential for faster rises in GDP further ahead.

30 June 2021

UK Economics Update

Recovery evolving rather than stalling

The recent softening in some indicators of activity is probably mostly a result of shifts in spending patterns within the economy rather than a sign that the recovery has already stalled. As such, we still expect monthly GDP to rise back to its pre-pandemic level by the autumn.

29 June 2021
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