Economy
Bank of England Poised to Raise Rates, but May Push Back on Bets for More
The Bank of England is expected to raise interest rates on Thursday as soaring energy costs push inflation higher, with economists polled by Reuters expecting Bank Rate to rise to 4.0% from 3.75% — but the bank may resist market bets on several more hikes next year.
Photo: Forextime.com / Wikimedia Commons (CC BY 2.0). Photo shows a stock market concept, not the Bank of England.
The Bank of England is expected to bow to inflation pressure from soaring energy costs and raise interest rates on Thursday, though it may push back against investors' bets that several more increases will follow next year.
Economists polled by Reuters expect the bank to raise Bank Rate to 4.0% from 3.75%, its first hike since August 2023, when inflation was still more than triple its 2% target.
The bank was criticised for underestimating how persistent inflation would prove the last time energy costs surged, and it is wary of being caught out again, with global energy prices high and little sign of a lasting end to the Iran war. This time, the US Federal Reserve and the European Central Bank have moved first.
Governor Andrew Bailey has said the bank cannot wait for conclusive proof of second-round effects, where higher inflation feeds into wage- and price-setting, or it will act too late. But how much evidence is enough, and whether the drawn-out Iran war makes some second-round effects inevitable, have divided the Monetary Policy Committee, which voted 6-3 to hold rates in September.
In September the bank warned that inflation would rise above 4% early next year, and said the jump in energy prices since its July forecasts bore similarities to its "adverse" scenario, in which inflation risked becoming entrenched. Inflation has since run hotter than the bank expected: consumer prices rose 3.5% in the year to September, compared with the bank's July forecast of 3.0%.
"In other words, their hands are increasingly being forced, whether they like it or not," said Stefan Koopman, senior macro strategist at Rabobank.
The Reuters poll pointed to a 7-2 vote in favour of a hike, with external members Alan Taylor and Swati Dhingra seen as most likely to continue to vote to keep rates steady. But even hawkish policymakers may balk at endorsing market pricing of three to four more quarter-point hikes in 2027, which would take Bank Rate to between 4.75% and 5.0%.
Alongside new economic forecasts, investors will be watching for the bank's initial assessment of finance minister John Healey's budget, delivered last week. The bank announces its decision at 1200 GMT on Thursday, with Bailey and some of his deputies holding a press conference at 1230 GMT.
Source: Reuters
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