Hike rates

Bank of England will be first major bank to raise rates, likely in December – economists: Reuters poll

People walk past the Bank of England during the morning rush hour amid the coronavirus disease (COVID-19) pandemic in London, Britain July 29, 2021. REUTERS/Henry Nicholls/File Photo

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LONDON, Nov 12 (Reuters) – The Bank of England will be the first major central bank to raise interest rates, but whether that initial hike comes as early as next month or waits until early this year next divides economists polled by Reuters.

Britain’s central bank surprised markets – but not the majority of economists polled by Reuters in October – by leaving the bank rate unchanged at a record low 0.10% last week.

While the median forecast in the November 8-12 poll called for a 15 basis point increase on December 16, just under half of those polled, 21 out of 47, said the Bank would hold firm. If it acts next month, it would be its first December rise since 1994.

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“The December meeting is now clearly ‘live.’ The next two labor market releases will be particularly important for the MPC,” said Marchel Alexandrovich of Jefferies.

“If both are decent, the majority of the MPC might well be on the side of raising the bank rate by 15 basis points in December. However, if the December report is rather subdued, it would clearly be more prudent to make a decision on rates. be postponed until February.”

Reuters poll: outlook for UK economy and Bank of England policy

Markets also largely priced in a rise in December.

While economists’ forecasts for a December increase were on the edge, an increase in the first quarter of 2022 appears to be materializing, most likely in February when the Bank releases its quarterly monetary policy report. All but one in 44 economists forecast an increase by the end of March.

After that first hike to 0.25% next month, medians showed the Bank added another 25 basis points in the second quarter before halting until early 2023, when it will carry the costs of loan at 0.75%. In October, this third increase was scheduled for the second half of 2023.

STROLLER

Britain’s economic recovery from the coronavirus pandemic lagged that of other wealthy countries in the last quarter. Official data on Thursday showed GDP growth of 1.3%, the weakest three-month growth since the country went into lockdown at the start of 2021.

The country faces the added headache of Brexit, which has further exacerbated the supply chain problems caused by the pandemic.

“It remains difficult to disentangle the impact of the Brexit pandemic, which will become clearer over time. But the relative weakness in business investment and trade likely reflects some impact from the new trade relationship,” said Allan Monks of JP Morgan.

Growth in this quarter and the next was estimated at 1.0% and 0.8% respectively, two levels weaker than expected last month. In 2022, growth was forecast at 5.0% and in 2023 at 2.1%, unchanged from last month. The economy is expected to return to pre-COVID levels by the end of March, nearly 75% of respondents said.

But while weaker growth would likely remain in the BoE’s hand, inflation forecasts have risen dramatically and will remain more than double the Bank’s 2.0% target for a longer period.

Inflation will average 4.1% this quarter, 4.2% the next and 4.2% in the second quarter of 2022. Last month, the respective forecasts were 3.9%, 4.0% and 3.5%. The average for 2022 was now 3.2%, up from October’s forecast of 2.8%.

BoE Governor Andrew Bailey said last week that the Bank would act if it saw higher inflation expectations driving up wages, after previously saying it would have to act to contain inflation expectations.

Unemployment levels were seen as fairly stable, peaking early next year at 5.0% before falling back to 4.6%, reassuring policymakers who are debating whether to raise unemployment or not. rate.

“I think they should. The jobs data is pretty strong,” said Societe Generale’s Brian Hilliard, who expects a rise in December.

(For other articles in Reuters’ long-term global economic outlook polls, read more)

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Reporting by Jonathan Cable; Poll by Mumal Rathore and Milounee Purohit; Editing by Ross Finley and Toby Chopra

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