Due to rising inflation, the Bank of England expects to raise interest rates on Thursday
Financial markets believe that the Bank of England will become the first major central bank to start a series of interest rate hikes at noon on Thursday to contain inflationary pressures in the bud.
The Bank of England’s new forecast is expected to show rising inflation More than 5% Next year and exceeding its 2% target will take longer than previously expected. Money market traders believe that the central bank will raise interest rates at least from 0.1% to 0.25%, and many expect even greater moves.
Economists are not sure whether the Bank of England’s Monetary Policy Committee will vote to raise interest rates, but many have changed their views in the past month. Offensive information Regarding the inflation of central bank officials.
Goldman Sachs chief British economist, Steffan Ball, predicts that the Bank of England will raise interest rates by 0.15 percentage points on Thursday to quell inflationary pressures, after the government’s coronavirus vacation plan apparently ended in September .
“In view of rising inflation expectations and the continued hawkish comments of key members of the Monetary Policy Committee, we believe the Bank of England has the incentive to take preemptive and decisive action,” Ball said.
The Bank of England last raised the official interest rate in 2018 and lowered it to a historical low of 0.1% when the coronavirus crisis began.
According to data from the London overnight index swap market, traders currently expect MPC to raise interest rates to 1.25% by 2023.
Last week’s Chancellor of the Exchequer Rishi Sunak’s budget raised public spending ahead of Bank of England’s expectations, which will increase the pressure on members of the Monetary Policy Committee to vote for a rate hike on Thursday.
The most recent economic data, including the October Business Purchasing Managers Index, which was closely watched on Wednesday, has been revised upwards.
exist An interview Huw Pill, chief economist of the Bank of England, said in an interview with the Financial Times last month that the central bank is “in the business of price stabilization” and traders believe it needs to raise interest rates to consolidate the credibility of this language.
However, economists pointed out that few of the nine members of the Monetary Policy Committee made a clear commitment to their vote, and even those deemed more inclined to support higher interest rates, such as Pill, also stated that the decision was “very balanced. “.
On the hawkish side of the Monetary Policy Committee, Governor Andrew Bailey is expected to vote for a rate hike after saying last month that the Bank of England “will have to take action” to address the ongoing inflation problem.
The Deputy Governor of the Bank of England Sir Dave Ramsden and the external member of the Monetary Policy Committee, Michael Sanders, are also expected to support interest rate hikes after they voted for monetary policy tightening in September.
The three other Bank of England officials at the MPC – Peel, Ben Broadbent, the deputy governor for monetary policy, and Jon Cunliffe, the deputy governor for financial stability – most May become a wavering voter.
Silvana Tenreyro, another external MPC member, is considered the least willing to raise interest rates.She said she was in late October did not expect Since the September MPC meeting, economic news has been of great significance.
Economists believe that two other outside members-Catherine Mann and Jonathan Haskel-will vote for maintaining interest rates at 0.1%.
Alan Monks, a British economist at JPMorgan Chase, said: “We assume that Bailey’s assertion is based on the expectation that at least five members support an upcoming interest rate hike. Therefore, our best guess is that the voting result is 5-4. Tenreyro, Mann, Haskel, and Cunliffe disagree.”
With the exception of the Monetary Policy Committee vote, all eyes will be on the Bank of England’s new inflation forecast.
The focus will be on the persistence of inflation above the target. Economists believe that the Bank of England will send a signal that the financial market’s expectations for multiple interest rate hikes have gone too far.
HSBC senior economist Liz Martens said: “No matter what action the Bank of England decides to take on interest rates, we suspect that it will at least slightly delay the degree of austerity that has now been digested through inflation forecasts.
“We believe that MPC will predict that the inflation rate will fall below 2% by the end of 2023 to indicate market pricing [on interest rates] Given the news about economic fundamentals since then, this is a bit too much. But regardless of whether it will move in November, we think the UK will raise interest rates soon. ”