LONDON- The Bank of England will deliver another bumper 50 basis points (bps) increase to borrowing costs next month but then slow the pace to a more regular 25 basis point rise in November before pausing, a Reuters poll forecast.
Earlier this month the Bank, the first amongst its major peers to start unwinding ultra-loose COVID-19 policy, raised interest rates by 50 basis points – the most in 27 years – in its attempt to contain inflation likely to climb into double digits.
More than half of the economists polled by Reuters Aug. 9-12 – 30 of 51 – said the BoE would take Bank Rate to 2.25 percent on Sept. 15 by adding 50 basis points. The other 21 suggested a more modest 25 basis point lift to 2.00 percent.
The expected hefty increase comes despite official data showing the economy contracted 0.1 percent last quarter and the central bank saying the country was likely to enter a recession later this year and not emerge from it until early 2024.
“With growth slowing, it is tempting to assume the BoE will be thinking of hitting the brakes – and could even be cutting rates within the next year. But for now at least, the UK’s problems are supply and inflation driven: allowing inflation to rise even further risks only making the situation worse,” said Elizabeth Martins at HSBC.
A large majority of those polled said the Bank would slow the pace in November to 25 basis points. For the December meeting, 18 economists said the Bank would add another 25 basis points while 25 said it would pause.
The median forecast suggested borrowing costs would end the year at 2.50 percent, where they would stay until a cut in 2024.
That is despite the threat of recession, with the median forecast of one within a year at 60 percent and within two years at 75 percent. However, quarterly median forecasts only depicted very weak or no growth as economists picked different timings for when it would happen. — Reuters
