The Bank of England could react more quickly to runaway inflation figures next week as key decision-makers sit down to set interest rates.
Analysts and the market broadly expect the Bank’s Monetary Policy Committee (MPC) to add 50 basis points to the key rate.
It would bring the interest rate to 1.75% from today’s 1.25% set in June.
At that point, three members had already voted for the MPC to accelerate rate hikes, as some other central banks around the world have done.
Markets give an 87% chance of a 0.5% to 1.75% increase at this meeting
“After a number of central banks around the world have accelerated their tightening cycles, the Bank of England is starting to lag behind when it comes to raising interest rates,” said Luke Bartholomew, senior economist at assets. manager Abdn.
“We expect this impression to be somewhat corrected next week when the Bank raises interest rates by half a percent.”
In June, Catherine Mann, Jonathan Haskel and Michael Saunders all voted for the half-point increase.
From that moment on Andrew Baileythe bank’s governor who voted against the larger increase said it is an option at next week’s meeting.
“Markets give an 87% chance of an increase from 0.5% to 1.75% at this meeting,” said Russ Mold, investment director at AJ Bell.
But the markets still give about a one-in-eight chance that yields won’t rise by the full half-point.
Samuel Tombs and Gabriella Dickens, economists at Pantheon Macroeconomics, argued that market observers shouldn’t take a big rise for granted.
“The MPC’s rate decision next week is a very close call, but on balance we think the committee is sticking to its slow and steady approach,” they said.
We doubt the MPC will rule that bank rates should rise as fast as the markets expect. We expect six members to vote to raise bank rates by 25bp, unchanged from June
“The MPC started its tightening cycle ahead of the US fed and the ECB (European Central Bank), which means there is less need for her to rush,” they said.
“We doubt the MPC will rule that bank rates should rise as fast as the markets expect. We expect six members to vote to raise bank rates by 25bp, unchanged from June.
“No of the sensible six have implied in speeches that they lean towards 50 bp.
Indeed, in the context of current market prices, Mr Bailey’s statement that ’50 basis points is not locked in, and anyone predicting that based on their own opinion’ is certainly a nod that the market-implied opportunities of a 25 bp is too low.”