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BOE Poised for First Rate Hike in Three Years: Decision Guide - BLOOMBERG
The Bank of England looks ready to raise interest rates by a quarter point to 4%, its first hike in more than three years.
Economists expect a clear majority of the nine-member Monetary Policy Committee to support immediate action on Thursday, with the bank foreseeing consumer price inflation close to 5% on the back of rising gas and oil prices from the US-Iran conflict.
Energy costs have torn into the BOE’s forecasts; an increase of at least 25% in UK household bills is projected for January, before a further rise in April. Food prices are also starting to be affected. The BOE says those costs are particularly salient for consumers.
UK Energy Bills Forecast to Rise Sharply in January
More than three quarters of 35 economists surveyed by Bloomberg believe the MPC will vote at least 7-2 for a rate hike. Markets are priced for at least three more increases to 4.75% by next autumn.
Investors see December’s decision on a knife-edge, though economists think a second hike is more likely to be in February. By then, markets currently forecast two full quarter point rate rises, posing a communications challenge for the bank. Its guidance may be updated to explain how the committee thinks about the threat of above-target inflation.
The BOE will also publish a new set of forecasts in its quarterly Monetary Policy Report, alongside the decision at 12 p.m. London time.
At the last meeting in September, just three members of the committee voted to lift borrowing costs. Economists now expect four others to join the hawks, including Governor Andrew Bailey and his deputies Sarah Breeden, Clare Lombardelli and Dave Ramsden. External member Alan Taylor is seen as the most likely dissenter with fellow dove Swati Dhingra possibly joining him, leaving the MPC split 7-2 or 8-1.
The last time the MPC was that united on a decision was in April, when chief economist Huw Pill was the lone voice calling for a hike.
A rate rise is widely anticipated because the committee has signalled in the past that inflation becomes a problem at 4%. at which point the public notices it. That feeds into pay demands, setting off a possible wage-price spiral.
