London: The Bank of England is likely to hike interest rates once again this week, possibly the last hurrah for one of the great tightening cycles of the last 100 years as a cooling economy begins to worry policymakers.
All but one of 65 economists polled by Reuters in recent days predicted the BoE will raise Bank Rate to 5.5% on Thursday from 5.25%, which would mark its highest level since 2007.
Financial markets are less certain than economists with rate futures on Friday showing a 25% chance of a pause but both are coming to the view that the streak of rises in borrowing costs since December 2021 is in its last days.
If Bank Rate does peak at 5.5% from a starting point of 0.1% it would rank fourth on the list of Britain’s biggest tightening cycles of the last century, behind surges that took place in the late 1980s and in the early and late 1970s.
Recession accompanied all of those prior sharp increases in ratesanda downturn is increasing-ly on the minds of the Monetary Policy Committee (MPC), with the 14 rate hikes it has already made yet to fully feed through into the real economy.
Much of the data over the last week underlined Governor Andrew Bailey’s comment this month that the BOE was “much nearer” to ending its tightening cycle.
Economic output in July dropped more steeply than expected, even if one-off factors like strikes were behind some of the fall, and the unemployment rate has already overshot the BOE’s forecast for the third quarter as a whole.
The European Central Bank also cited a weak economic outlook when it hiked rates last week and signalled that would be its last such move in the current cycle.
But with inflation in Britain still running higher than in any other major advanced economy, the calculation for BoE officials is argu- ably more complex with hot wage growth data in Britain still pointing to inflationary risks.
“While we expect the critical mass of the committee to be grouped around a 25 basis-point hike, the uncertain, finely balanced nature of the turning point in the cy- cle means we believe there will be dissenters on both sides,” said Jack Meaning, chief UK econo- mist of Barclays.
Data between now and Thursday’s announcement could yet change the debate.
Inflation figures for August due on Wednesday are likely to buck the falling trend thanks to rising petrol prices.