By Indradip Ghosh and Jonathan Cable
BENGALURU/LONDON, Nov 13 (Reuters) – The Bank of England will wait until early next year before raising interest rates again, probably February, according to economists polled by Reuters, who said upcoming data may persuade the bank to build on last week’s increase sooner.
British economic growth has consistently beaten expectations recently, but inflation is well above the central bank’s 2.0% target and is expected to rise above 4% next year.
Global energy costs have soared, in large part due to war in the Middle East. British fuel bills are likely to rise around 20% in January, when the regulator next adjusts retail prices to wholesale costs, just as the colder winter months kick in.
Whether or not the BoE opts for a December rate rise, which interest rate futures are almost completely pricing in – in contrast to the economists’ view – will depend in large part on how energy prices trade in coming weeks.
Some poll respondents said they would wait for the October inflation data, due on November 18, before considering any changes to their view. Others said they would need to see this month’s inflation data, due just days before the bank’s next rate decision.
“A December hike is certainly on the table, and we will update our view when we see the data that’s coming,” said Ellie Henderson at Investec, who expects the BoE to next raise rates in February.
“We’re seeing from other central banks, if you do have a particularly hot inflation print, it can tilt the dial towards an earlier hike or a bigger hike. We don’t think an outsized hike is likely in the UK, but we could see a December rate hike.”
All but one of the 65 economists surveyed by Reuters November 11-13 said the BoE would leave the Bank Rate at 4.00% after its Monetary Policy Committee meets in the week before Christmas with the other expecting a rise.
Last week the MPC voted 8-1 for a 25 basis point hike with one member – Catherine Mann – wanting a 50 bp increase.
The vast majority of economists in the survey saw the Bank Rate peaking at 4.25% with only a handful seeing an additional 25 basis point hike next year to 4.50% and seven seeing no rate rise from 4.00%.
Inflation rose to 3.5% in September from 3.1% in August, official data showed, and October figures due next week are likely to indicate it rose even further above target.
“It will take some time for higher energy costs to fall out of the annual inflation rate. Outside of energy prices, food price inflation is likely to put upward pressure on inflation throughout 2027,” said Emma Wilks at HSBC.
Inflation will peak at 4.3% early next year, according to the median response to an extra question in the poll, but median forecasts said it would slow over 2027 and average 2.6% in the fourth quarter. BoE forecasts saw it topping out around 5% in the second quarter.
Asked about her voting intentions for the coming MPC meetings, Bank of England Deputy Governor Clare Lombardelli said on Tuesday: “I wouldn’t rule December in or out, February in or out,” adding each meeting was “live”.
Britain’s economic growth accelerated to 0.7% last quarter, its fastest pace in 2-1/2 years, official data showed on Thursday. Economists raised their gross domestic product expansion forecast for this year to 1.5% from 1.3% previously, but have held their expectations for 1.2% next year, the poll found.
“Repeatedly stronger GDP outturns suggest that households and businesses may be better placed to absorb higher borrowing costs than previously assumed. That potentially reduces one of the constraints facing the MPC if inflationary pressures require policy to tighten further,” said Nikesh Sawjani at Lloyds.
(Other stories from the Reuters global economic poll)
(Additional reporting by Nushaiba Iqbal; writing by Jonathan Cable; polling by Anant Chandak and Indradip Ghosh; Editing by Ross Finley and Philippa Fletcher)
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