Bank of England to leave rates on hold through mid-2024, cut in Q3
The Bank of England has concluded its tightening cycle and will likely keep the Bank Rate at 5.25% until at least July, a Reuters poll of economists showed, although a significant minority said it would hike rates again this year.
Last week, the Bank surprised markets by not raising rates, sending sterling GBP= to a six-month low, but signalled rates would remain higher for longer.
The Monetary Policy Committee was split and voted 5-4 in favour of holding, amid a slowing economy and an unexpected fall in inflation, which it said it was not taking for granted.
Inflation was expected to rise in August but dropped to an 18-month low of 6.7%. A bigger decline was noted in core and services inflation, closely watched by the Bank.
The BoE has raised interest rates by 515 basis points in 14 consecutive moves since December 2021 to curb inflation, which was running at the highest among G7 economies. It peaked at 11.1% in October 2022 and remains at more than three times the BoE’s 2% target.
An end to rate rises will be welcomed by many home-owners and small businesses that have faced soaring borrowing costs, especially as just a few months ago, markets had expected BoE rates to reach 6% or higher due to stubbornly high inflation.
Rates will be held at the Nov. 2 announcement according to the Sept. 22-26 poll, with over 75% of economists, 47 of 62 surveyed, expecting no move.
“We don’t rule out a hike in November, but it will probably require a big upside surprise to either the services inflation or wage data,” noted James Smith from ING Financial Markets.
“Bigger picture, the Bank has made it abundantly clear that it now thinks the length of time rates stay high is much more important than how high they go in the short term.”
Nearly a quarter of participants predicted a final 25-basis-point hike to 5.50% in November.
That is a turnaround from a poll taken before September’s meeting when almost half, 30 of 65, predicted a peak of 5.75% or higher next quarter.
Still, over 40% of economists, 15 of 37, who answered an extra question said the BoE should hike rates again this year. The remaining 22 said it should not.
“If core inflation starts to tick higher again, I think the BoE will start to get very worried, especially with labour market data suggesting wage growth is still quite strong,” said James Rossiter, head of global macro strategy at TD Securities.
Median forecasts showed rates holding at 5.25% until at least July, in line with market expectations. It was predicted to fall to 5.00% and 4.75% in the third and fourth quarters.
About a third of 53 economists expected the first rate cut in the second quarter next year but it wasn’t until the third quarter that the majority, 34 of 48, predicted rates to be at 5.00% or lower.
Sixteen economists predicted Bank Rate at 5.00% in the third quarter, 10 forecast 4.75%, six said 4.50%, one expected 4.25% and one 3.75%.
The European Central Bank was predicted to cut rates in the third quarter next year but the Federal Reserve might start in the second quarter, separate Reuters polls showed.
British inflation will average 6.8% and 4.7% this quarter and next, respectively, and stay above the BoE’s 2% target until at least 2025, according to a recent poll. Britain’s economy was expected to grow 0.4% and 0.5% this year and next.
Source: Reuters (Reporting by Shaloo Shrivastava; Polling and analysis by Anitta Sunil and Purujit Arun; Editing by Jonathan Cable and Bernadette Baum)