The Bank of England is increasingly likely to raise interest rates this year rather than hold them steady, according to economists at Pantheon Macroeconomics.
Rob Wood said recent private-sector data suggests policymakers should be “more concerned about inflation than growth,” as price pressures continue to intensify amid ongoing geopolitical uncertainty.
The latest PMI reading came in at 52, beating expectations of 49.8 and indicating continued expansion. Wood noted the data points to underlying services inflation accelerating to above 6% annually, well above the 4.1% figure reported earlier this week.
Taken together, the figures increase the likelihood that the Bank will opt for further tightening rather than keeping rates on hold.
Wood added that while businesses are still reducing headcount overall, labour market indicators have improved, with the employment balance rising for a fourth consecutive month—suggesting some stabilisation prior to the recent escalation in energy costs and geopolitical risks.
Traders have stepped up expectations for further tightening by the Bank of England after stronger-than-expected PMI data signalled a rebound in private sector activity.
Money markets are now pricing in interest rates rising from 3.75% to around 4.25% by the end of 2025, as the UK economy showed resilience in April despite ongoing pressure from the Iran conflict.
The shift reflects growing concern that persistent inflationary pressures may outweigh risks to growth, prompting policymakers to keep a tightening bias.
