The Bank of England will raise Bank Rate for the first time in more than three years to 4.0% in November, according to a majority of economists polled by Reuters who have reversed course on the likelihood of a rate rise this year amid persistently high inflation.
A strong majority — 54 of 63 economists polled between October 12 and 14 — forecast the central bank would raise the rate by 25 basis points next month, which coincides with the bank's next set of quarterly forecasts. In last month's survey, about 90% of respondents had forecast rates would stay on hold for the remainder of the year.
No consensus on what comes next
Economists are split on whether another increase follows. There is still no majority for a further rate rise beyond November, though financial markets are fully pricing in four quarter-point rises by the end of next year.
UK inflation stood at 3.1% and is forecast to rise to roughly double the bank's 2.0% target, having broadly stayed above target for more than five years. Hefty energy price rises stemming from the US-Israeli war with Iran that began in late February have so far not spilled into broader consumer price rises, Reuters noted.
Hawkish voices gain ground
Sonali Punhani, UK economist at the Bank of America, recently changed her view from a hold to a hike. "The bigger pickup in inflation is still ahead of us rather than behind us," she said. "As a central bank, if you are heading towards inflation close to or above 4%, the risk-reward is probably leaning towards the direction of a hike versus a hold and hoping second-round effects don't come in."
The Bank of England's governor has also hinted at a rate rise, adding to expectations that the tightening cycle will resume.
Sources:
Reuters: BoE to raise rates to 4% in November, but economists narrowly expect hold from there
A strong majority — 54 of 63 economists polled between October 12 and 14 — forecast the central bank would raise the rate by 25 basis points next month, which coincides with the bank's next set of quarterly forecasts. In last month's survey, about 90% of respondents had forecast rates would stay on hold for the remainder of the year.
No consensus on what comes next
Economists are split on whether another increase follows. There is still no majority for a further rate rise beyond November, though financial markets are fully pricing in four quarter-point rises by the end of next year.
UK inflation stood at 3.1% and is forecast to rise to roughly double the bank's 2.0% target, having broadly stayed above target for more than five years. Hefty energy price rises stemming from the US-Israeli war with Iran that began in late February have so far not spilled into broader consumer price rises, Reuters noted.
Hawkish voices gain ground
Sonali Punhani, UK economist at the Bank of America, recently changed her view from a hold to a hike. "The bigger pickup in inflation is still ahead of us rather than behind us," she said. "As a central bank, if you are heading towards inflation close to or above 4%, the risk-reward is probably leaning towards the direction of a hike versus a hold and hoping second-round effects don't come in."
The Bank of England's governor has also hinted at a rate rise, adding to expectations that the tightening cycle will resume.
Sources:
Reuters: BoE to raise rates to 4% in November, but economists narrowly expect hold from there
