Inflation remains stubbornly high in the UK at 10.1pc, with the Bank of England expected to raise rates three more times this year to 5pc to bring it under control.
The Bank of England Governor, Andrew Bailey, and the Monetary Policy Committee (MPC) members are expected to implement another interest rate hike this Thursday. There is ongoing discussion about whether this will be the final increase in the current cycle.
Market predictions indicate a quarter-point rate increase, which would raise the main base rate to 4.5%. A divided vote among the committee members is anticipated, as seen in the 7-2 vote during the last meeting in March.
The MPC is aware of the impact on certain aspects of the economy and has repeatedly mentioned its diminishing interest in additional rate hikes. However, its main objective is to reduce inflation, which currently exceeds 10% and should ideally be close to 2%.
While the US Federal Reserve hinted at a pause in rate adjustments last week, markets forecast another 0.25% increase from the MPC in August and September, taking the base rate to a peak of 5%. Based on current rate swap markets, Bailey and his colleagues are expected to partially reverse the rate hikes with 0.25% cuts in February and March 2023.
UBS economist Anna Titareva noted that data received since the last meeting in March hasn’t alleviated the MPC’s concerns about persistent inflation. Rabobank macro strategist Stefan Koopman predicts a peak rate of 4.75% later this year and highlights the need for the economy to slow down in order to encourage lower prices and wages.
In addition to the immediate policy rate decision, the focus of the meeting will be on signals from policymakers regarding the future rate trajectory. Titareva believes that no further hikes will occur beyond May, but she acknowledges a significant risk of at least one more 25 basis point increase on June 22. She expects the MPC to emphasize that the next steps will be data-dependent, with key data releases scheduled before the June meeting, including the labour market, inflation, and various survey indicators.
