Bank of England to be first major bank to hike rates, probably in December – economists polled by Businesshala

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LONDON (Businesshala) – The Bank of England will be the first major central bank to raise interest rates, but whether that initial hike comes as soon as next month or if it waits until early next year, surveyed by Businesshala Economists are divided.

FILE PHOTO: People walk past the Bank of England during the morning rush, amid the coronavirus disease (COVID-19) pandemic, in London, Britain July 29, 2021. Businesshala / Henry Nichols / FILE PHOTO

Britain’s central bank stunned markets – but most economists Businesshala surveyed in October did not – leaving the bank rate unchanged at a record low of 0.10% last week.

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While the average forecast in the November 8-12 poll was for an increase of 15 basis points on December 16, less than half of those polled, 21 of 47, said the bank would persevere. If it takes action next month, it will be the first December hike since 1994.

“The meeting in December is now clearly ‘live’. Of particular importance to the MPC will be two upcoming labor market releases,” said Marchel Alexandrovich at Jefferies.

“If both are decent, a majority of the MPC may look at raising the bank rate by 15 basis points in December. However, if the December report is on the soft side, it is time for a decision on rates to be delayed till February. would obviously be more prudent.”

Markets have also largely set the price in December’s growth.

While economists’ forecasts for growth in December were on a knife-edge, growth in the first quarter of 2022 appears to be baked, most likely in February when the bank publishes its quarterly monetary policy report. Barring one in 44 economists, all are forecasting growth by the end of March.

After rising to 0.25% for the first time next month, moderators showed the bank adding another 25 basis points in the second quarter before halving until early 2023, when it will take borrowing costs down to 0.75%. In October, that third increase was set for the latter half of 2023.

Lazy

Britain’s economic recovery from the coronavirus pandemic lagged that of other prosperous nations in the last quarter. Official data on Thursday showed GDP growth at 1.3%, the country’s weakest growth in three months to early 2021.

The country is facing the additional headache of Brexit which has further exacerbated supply chain issues due to the pandemic.

“It is difficult to take away the impact of the pandemic from Brexit, which will become apparent over time. But the relative weakness in business investments and trading reflects some impact from the new business relationship,” said Alan Monks at JPMorgan.

Growth in this quarter and next quarter was pegged at 1.0% and 0.8% respectively, both weaker than last month’s forecast. The growth rate was projected to be 5.0% in 2022 and 2.1% in 2023, unchanged from the previous month. Around 75% of the respondents said that the economy was expected to return to pre-COVID levels by the end of March.

But while weak growth will likely remain in the hands of the BoE, inflation forecasts have risen dramatically and will more than double the bank’s 2.0% target for the long term.

Inflation will average 4.1% in this quarter, 4.2% in the next and 4.2% in the second quarter of 2022. The respective forecasts for the previous month were 3.9%, 4.0% and 3.5%. The 2022 average has now risen to 3.2% from the 2.8% forecast for October.

BoE Governor Andrew Bailey said last week that the bank would have to act to moderate inflation expectations if it sees expectations of a hike in wages outpacing expectations of higher inflation.

Unemployment levels were seen to be fairly stable, falling to 4.6% before hitting 5.0% early next year, giving some comfort to policymakers who were debating whether to raise rates.

“I think they should. The labor data are pretty strong,” said Brian Hilliard at Societe Generale, who expects an increase in December.

(For other stories from the Businesshala Global Long Term Economic Outlook Poll package)

Reporting by Jonathan Cable; Voting by Mumal Rathore and Milauni Purohit; Editing by Ross Finlay and Toby Chopra

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