...By Henry George for TDPel Media.
Economists predict that the Bank of England (BoE) will continue to raise interest rates due to the persistent high inflation in the UK, particularly driven by rising food prices.
In March, the Consumer Prices Inflation (CPI) remained in double digits, leading to tighter household budgets and proving more resilient than expected.
As a result, the BoE could increase interest rates again from the current rate of 4.25% when it meets on Thursday.
Market expectations have risen in the past month, and analysts anticipate interest rates to reach a peak of either 4.75% or 5% by the end of the year.
Oxford Economics economists are predicting another 0.25 percentage point increase on Thursday, pushing the bank rate to 4.5%.
The bank’s Chief UK economist, Andrew Goodwin, stated that the criteria for tightening monetary policy further, which were set out in the March policy statement, have been met, with the labour market still tight and wage growth and services inflation remaining high.
The UK’s headline inflation rate is running at approximately twice that of the US, and as a result, there is expected to be more monetary intervention.
The MPC’s decision on interest rates is influenced by its mandate to bring inflation back down to its 2% target.
Laith Khalaf, head of investment analysis at AJ Bell, highlighted that the inflationary picture in the UK is not “benign”.
He stated that everyone is anticipating a rate hike from the Bank of England at the upcoming policy meeting.
The contrast between the US and the UK is stark, with the headline inflation rate running around twice that of the US.
The BoE is expected to administer another “few doses of monetary medicine” in order to alleviate inflationary pressures.
In contrast to the US Federal Reserve, which recently raised interest rates by 0.25 percentage points, the Bank of England is predicted to continue with its rate hikes.
British banks have not been overly concerned about the impact of rate hikes on their balance sheets, citing their resilience and strength.
The European Central Bank (ECB) has also decided to slow the pace of rate hikes, increasing rates by 0.25 percentage points, but has not ruled out further increases.
ECB President Christine Lagarde stated that “the inflation outlook continues to be too high for too long”.
The BoE’s upcoming decision on interest rates will be a significant one as it attempts to balance the need to bring inflation back down to its 2% target while not piling more pressure on already strained borrowers.
