The Bank of England is anticipated to implement another interest rate hike at the forthcoming meeting of the Monetary Policy Committee (MPC) next Thursday, although there’s some contention regarding the potential scale of the increase.
In addition to the interest rate verdict, the MPC will also release an updated economic report and provide projections for the following months.
In light of the recent dip in inflation, where the consumer price inflation reduced from 8.7% to 7.9% last month, doubts have arisen concerning the possibility of the MPC implementing a second consecutive half-point raise from the prevailing rate of 5.0%.
The recent drop in the Consumer Price Index (CPI) was greater than anticipated, leading to divided market expectations. Projections are now almost evenly split between a potential 50 basis points and 25 basis points increase at the meeting on 3rd August.
UBS economist Anna Titareva is among those predicting a rise to 5.5%, although she expressed uncertainty about this outcome.
Titareva identified three factors that might lead the MPC to implement another 50 basis points hike: the inflation over the past quarter exceeded the Bank’s estimates, employment figures have been inconsistent and have not shown enough positive change to significantly assuage the MPC’s worries about ongoing inflation, and implementing a significant increase early gives the option to halt hikes in September should the data show improvements.
Presently, market anticipations suggest that interest rates will peak at about 5.75% to 6% by year’s end, indicating a significant reduction from previous estimates made during the height of inflationary concerns when rates over 6% were predicted.
Nonetheless, the Bank continues to navigate a precarious path as it attempts to control inflation without causing damage to the real estate market.
