The Bank of England (BoE) is expected to leave its key interest rate at 3.75 percent for the fourth consecutive time on Thursday. That is the forecast of economists in London, as reported by the FAZ. Governor Andrew Bailey signaled he wants to see more evidence of broad inflationary pressure before acting.
A majority of the nine members of the Monetary Policy Committee (MPC) is likely to vote against a rate hike. Exceptions are possible: BoE Chief Economist How Pill already voted for an increase in April, and external MPC member Megan Greene considers tighter monetary policy appropriate. The remaining seven decision-makers around Bailey tend to favor keeping rates steady.
The background is the energy price shock resulting from the Iran war, which could push the inflation rate higher in the second half of the year. In April, inflation surprisingly fell to 2.8 percent – due to new government price caps on energy bills. Economists now expect a rate of over 3.0 percent for May.
The BoE leadership is also watching the cooling economy and weaker labor market. Unemployment and fewer job vacancies should reduce wage pressure, which the central bank must weigh against rising energy prices, said Sanjay Raja, chief UK economist at Deutsche Bank in London. A rate hike could follow in the coming months – the probability has increased somewhat.
Ruth Gregory of Capital Economics considers a rate hike in July or September possible but not certain. Andrew Wishart of Berenberg Bank even expects a rate cut to 3.50 percent by December. Financial markets are pricing in two to three hikes to 4.25 to 4.50 percent by 2027 – which Gregory considers excessive.
Source: www.faz.net
