By Jonathan Cable
LONDON (Reuters) – The Bank of England is not yet done with rate rises as it battles inflation running at more than four times its target but the economy is still unlikely to fall into recession, a Reuters poll of economists found.
In December 2021 the BoE was one of the first major central banks to draw a line under its ultra-loose pandemic-era monetary policy. It has now raised borrowing costs by 440 basis points across 12 consecutive meetings in modest-sized rate rises.
But that has so far failed to control inflation. Consumer prices rose 8.7% in annual terms in April, the joint highest among Group of Seven advanced economies, while a closely-watched measure of core price rises surged to a 31-year high.
All 64 economists polled June 12-14 said the BoE would add another 25 basis points to Bank Rate on June 22, taking it to 4.75%.
“A 25 basis point hike is our forecast based on the fact the Bank may think it has to do more to tame inflationary pressures especially given that hot inflation print,” said Ellie Henderson at Investec.
A majority of economists surveyed, 52 of 64, said Bank Rate will have peaked by end-August with the median forecast putting it at 5.00%. That was in line with a snap poll taken after the latest inflation data but higher than the 4.50% in a May 5 poll.
Eleven banks – including five gilt-edged market makers which are primary dealers in UK government bonds – said the peak would be higher, at 5.25%. One economist saw it topping out at 5.50% in Q4.
BoE Governor Andrew Bailey, as well as policymakers Jonathan Haskel and Catherine Mann, have all struck a hawkish tone in the past week.
Incoming rate-setter Megan Greene, who joins the Monetary Policy Committee next month and replaces the dovish Silvana Tenreyro, signalled on Tuesday the central bank may have a tough job returning inflation to target.
Markets are currently pricing in a peak of around 5.75%.
When asked about the risk to their terminal rate forecast, all 20 economists who answered an additional question said it was that it ends higher than they expect.
“Even as the Bank of England was among the first of the large central banks to engage in rate hikes in late-2021, the UK’s inflation persistence means it will be among the last to complete its hiking cycle,” said Stefan Koopman at Rabobank.
The U.S. Federal Reserve is expected to not raise interest rates for the first time in well over a year at the conclusion of its meeting later on Wednesday. But a significant minority of economists in a separate Reuters poll predicted at least one more hike as the economy remains resilient.
Although starting later, both the Fed and the European Central Bank have largely been raising rates in greater magnitudes than the BoE.
SLOW GROWTH
Britain’s economy grew 0.2% month-on-month as expected in April, official data showed earlier on Wednesday, and the Reuters poll suggested it would dodge a recession and instead grow modestly.
After flatlining this quarter GDP was predicted to expand 0.2% in each of the following three quarters.
Inflation was expected to drift down but wasn’t seen at the Bank’s 2% target until 2025. It will average 7.1% this year, 2.7% next and 2.0% in 2025, the poll showed.
But the vast majority who responded to an extra question, 16 of 17, said the risk was inflation falls slower than they expect rather than faster.
“We have to learn from the past few months where inflation has been stickier than we expected, but we do have forces bringing inflation down,” Investec’s Henderson said.
(For other stories from the Reuters global long-term economic outlook polls package:)
(Reporting by Jonathan Cable; polling by Aditi Verma and Anitta Sunil; Editing by Ross Finley and Catherine Evans)
