The Bank of England (BOE) is poised to follow in the footsteps of other central banks this week by raising its interest rates by a quarter-point. However, its ongoing battle to control inflation suggests that investors should be prepared for a potentially hawkish surprise.
Last week, both the Federal Reserve and the European Central Bank increased rates by 25 basis points. However, unlike their counterparts, these banks have indicated that their rate hikes are nearly complete and that future decisions will be heavily influenced by data. The same consensus of a quarter-point increase is expected from the Bank of England on Thursday.
Despite recent indications of a slowdown in price growth, inflation remains a pressing issue in the United Kingdom. Wages, in particular, continue to exert pressure and could prompt Governor Andrew Bailey and the BOE’s Monetary Policy Committee to adopt a more firmly assertive stance this week.
Charalampos Pissouros, an analyst at broker XM, remarks, “With most major central banks already concluding or nearing the end of their tightening campaigns, the Bank of England stands out as the lone exception.”
Among the Group of Seven nations, the United Kingdom has faced the highest inflation rates. Although June’s consumer price index (CPI) showed some encouraging signs of moderation, it is unlikely that the BOE’s fourteenth consecutive rate hike will consist of a surprising 50-basis point increase.
In conclusion, while the Bank of England may align with other central banks in terms of a quarter-point interest-rate hike, the persisting inflationary concerns suggest that investors should prepare for a potentially hawkish outcome on Thursday.
Inflation Slows, Easing Pressure for Rate Hike
Investors and analysts are closely watching the Bank of England (BOE) as it prepares to release its quarterly forecasts on inflation and economic growth. The unexpected slowdown in inflation to 7.9% in June has relieved some of the pressure on the BOE to increase interest rates by another 50 basis points. However, wage growth remains a concern, with rates exceeding core Consumer Price Index (CPI). This could push the Monetary Policy Committee to adopt a more hawkish approach and consider raising rates by 50 basis points.
In addition to the rate decision, monetary policy statement, and meeting minutes, the BOE’s upcoming release will provide forecasts that are anticipated to align closely with previous projections. The bank’s models have consistently predicted inflation below target in the next two years, while rate expectations have risen since May. BOE Governor Andrew Bailey may reiterate that future rate hikes will occur if inflation remains “persistent.”
Overall, investors will be paying close attention to the BOE’s forecasts, which will provide valuable insights into inflation and economic growth.
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