Poll suggests BoE set for another 50bp hike - InterestRate.co.uk
BoE

Poll suggests BoE set for another 50bp hike

A recent Reuters poll suggests the Bank of England (BoE) will increase the base interest rate by another 0.5% at its Monetary Policy Committee meeting next week. The meeting was initially scheduled for this week, but the central bank announced it would be delayed by a week as a mark of respect following the death of the Queen.

The poll results indicated that the BoE could even opt for a more significant increase than 50bps, but the latter is predicted to be the most likely outcome. This will substantially impact finances for many households already struggling due to higher living costs and increased interest rates.

The prediction comes despite expectations of inflation falling due to the energy support package revealed last week by the new Prime Minister, Liz Truss. Officials believe this move could see inflation peak at up to 5% lower than original forecasts.

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A second consecutive bumper increase

If the prediction is correct, this will mark the second consecutive bumper 0.5% rate hike from the central bank. Until August, all interest rate hikes since last December had been for 0.25%, but as the bank struggled to bring down inflation, the committee voted for a more significant increase last month, taking the base rate to 1.75%.

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In the Reuters poll, 40 of the 47 participating economists expected a rate rise of 0.5%, which would take the base rate to 2.25%. However, the other seven economists believe the rate hike could be as high as 0.75%.

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In July, inflation hit 10.1%, more than five times its target level and the highest since February 1982. The BoE has stated that aggressive monetary policy tightening is necessary to try and get inflation back under control – a stance that central banks worldwide have taken.

Sanjay Raja at Deutsche Bank said: “While we don’t expect the MPC to reach consensus on anything bigger than a 50bps hike at this stage, the case for further outsized rate hikes remains strong, if not stronger.”

There are expectations of a further hike of 0.5% in November, followed by a 0.25% increase in December. This would take the base rate to 3.00% in December, where economists believe it will remain until next October.

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Risk

The risk of a recession

Higher living costs and increased interest rates are taking a severe toll on household finances, with many cutting back on spending. In addition, data shows that economic growth was lower than expected in July, increasing the chances of a recession.

The poll showed that there had been changes in forecasts relating to the economy’s growth next year. Last month, it was predicted that the economy would grow by 0.2% next year. However, in the latest poll, this has been revised to a 0.2% contraction next year.