London, March 17 (BNA): The Bank of England appears to be preparing to go ahead with its interest rate hike on Thursday as it tries to prevent soaring inflation from becoming entrenched in the British economy.
All but five of the 49 economists recently polled by Reuters believe the Bank of England will raise the interest rate for banks for the third meeting in a row, to return to the pre-pandemic level of 0.75%, and the rest are expected to remain unchanged at 0.5%, it is reported Reuters.
The Bank of England forecast last month that inflation would peak at around 7.25% in April – nearly four times the BoE’s 2% target.
Investors will watch for any new thinking from price setters about how they – like central bankers elsewhere – plan to deal with the competing forces of price pressures and slowing economic growth that could turn into a recession.
The US Federal Reserve raised interest rates by a quarter of a percentage point on Wednesday and laid out a robust plan to push borrowing costs to restrictive levels by next year, with concerns about rising inflation.
The European Central Bank, which is behind the Bank of England and the Federal Reserve in reversing its pandemic stimulus, agreed last week to stop pumping money into markets this summer, paving the way for potential interest rate increases in 2022.
A Reuters poll of economists, published on Tuesday, showed inflation in the second quarter would average about 8%, the highest since the early 1990s.
Most economists expected all nine MPC members to vote in favor of a rate hike, but there could once again be a divided vote on how much tightening is needed.
Last month, a slim majority of five, including Governor Andrew Bailey, voted to raise interest rates by 25 basis points, rather than a larger 50 basis point increase. They said that faster action threatens to increase market expectations regarding future interest rate hikes that have already been enough to push inflation below the target level in the coming years.
Those bets in the market have intensified over the past month and are now pointing to a 2% bank interest rate by the end of next year.
Paul Hollingsworth, chief European economist at BNP Paribas, said he believes growth concerns will come to the fore later this year, “suggesting that market pricing for six hikes by the end of the year seems out of reach”.
The four MPC members who voted to raise interest rates by 50 basis points last month have expressed concern that high inflation risks becoming hampered by price and wage expectations among businesses and consumers.
The data over the past month has brought conflicting news on that front.
Inflation expectations of the public have strengthened to multi-year highs, according to surveys as the labor market has remained hot. Read more
But last week’s Bank of England report noted the poor outlook for wage growth among households, which converged embarrassingly with Governor Bailey’s appeal last month for people to show restraint when demanding a wage increase.
With investors also looking forward to next Wednesday’s budget update from Finance Minister Rishi Sunak, the British Chambers of Commerce said economic policy makers should be wary of increasing recession risks.
“Raising interest rates and taxes at this time would further weaken the UK’s growth prospects, by undermining confidence and undermining the finances of households and businesses,” said Soren Theroux, head of economics at BCC.
MI