Marketing No Comments

BoE may need to raise interest rates “a little bit,” Mann says

Bank of England monetary policymaker Catherine Mann said interest rates would probably have to go up “a little bit” further, and that in some ways Britain’s economy was already suffering from stagflation.

“We want to avoid inflation getting out of control. And it may mean that interest rates go up a little bit. We’ll just have to see where we are in May,” Mann said in a question-and-answer session after delivering a speech on Thursday.

To find out more about how we can assist you with your Second Charge Mortgage please click here

Asked about the risk of stagflation – a combination of slow growth and high inflation – Mann said “in some senses, we could say we’re already there” because of the jump in energy prices and slowing retail sales.

“But I think that, you know, it’s premature to kind of hearken back to the 1980s or the 1970s, in the U.S. context in particular, and use that vocabulary,” she said.

Source: Investing

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

UK economy: What’s next for inflation, output and the pound?

As the UK economy has dealt with the blows of the Covid pandemic and Russia’s invasion of Ukraine, the Bank of England has had to roll with the policy punches in its effort to pursue financial and economic stability.

Amid an atmosphere of enduring conflict in the East and inflationary pressures, Bank of England governor Andrew Bailey spoke with Breugel director Gundstrom Wolff, laying out the present environment in the UK and how policy can stabilise finance, the economy and currency in the wake of a large-scale military clash, a pandemic and the UK-specific development of Brexit.

Bailey said that the present “shock from energy prices” was historic, greater than any single year of the inflation-stoked 1970s, albeit with the caveat that that decade featured several rough years in succession.

“In the UK, and indeed elsewhere, we are very much facing a very large shock to aggregate real income and spending. That is not something that we have a policy toward that can make it go away,” Bailey said. “It’s coming through energy prices, through imported goods, through some food and is very much what we’d tend to call trade shock in that sense. Inflation measures are well above target. Unfortunately, I think it’s best to think that there is some more to come on that front.”

To find out more about how we can assist you with your Second Charge Mortgage please click here

“We expect it to cause growth and demand to slow. We’re beginning to see the evidence of that in both consumer and business surveys,” Bailey added.

Tradeoff, unconventional shocks

Bailey said that the Central Bank’s goal was to return inflation to its target “a couple of years out” and ensure that real adjustment occurs sustainably with minimal volatility and disruption. Bailey also said that the BOE and its contemporaries around the world remained committed to a globalised, integrated economy, much as they were during the widespread financial crisis more than a decade ago.

Bailey focused primarily on the disruptions of the pandemic and the dispute between Russia and Ukraine, stating that those two globally impactful events overshadowed and muddied any comprehensive analysis of Brexit’s effects on the UK’s economy and trade.

He said that thus far he felt the Central Bank’s planning had been effective in the face of the harrowing Covid era, the calmer-than-expected Omicron variant period and pandemic recovery, which resulted in a tight labour market and an unforeseen buildup of personal savings.

He said, however, that those with fewer economic means bore a disproportionate brunt of the current circumstances because they did not benefit generally from the surge in savings while simultaneously experiencing greater exposure to rising energy costs.

A resolution to the crisis in Ukraine would go a long way toward solidifying the UK’s position and stabilising energy and commodities markets, Bailey said, though near-term pressure could make the situation worse before it improves.

Now approaching a month old, the conflict has brought a deluge of question marks, which Bailey said caused the BOE to revise its guidance regarding “further modest tightening” in the form of interest-rate hikes from “likely to be appropriate” to “may be appropriate.”

“We’re facing a very big shock, by any historical standard. We’ve got a very large tradeoff between inflation and output activity, with the two moving in opposite directions. There is a very high level of uncertainty,” Bailey said.

Behind the curve?

In prior instances of market shock, Bailey said that the current policy would be behind the curve, facing pressure to accelerate counter-inflationary measures, including rate hikes.

However, he said, this was not a typical instance of a demand shock, with some favourable economic indicators as well as the large scale of the disruptions giving some pause and cause for caution to policymakers.

“We’ve got a pandemic followed by a European war, on any scale that is a very difficult position to be in for policy. The task we have is clear, but it’s hard, but we will stick to it and all central banks are committed on that front,” Bailey said. “In our case, it’s appropriate to tighten policy in these circumstances, but we do so recognising the uncertainty.”

Forex implications, long-term prognosis

Bannockburn Global Forex chief strategist Marc Chandler assessed the broader strategy in the UK and its impact on the pound, which has produced a mixed forecast and tepid results in recent days even as stable currencies have been attractive to risk-off investors.

“Sterling has underperformed here in March. It is the second weakest major fx, off 2.45%, well less than the Japanese yen’s 7.1% decline. The Bank of England hiked rates but softened its guidance, and the market does not think it can keep pace with the (US Federal Reserve),” said Chandler, noting that the US two-year premium over the UK doubled in March, around 100 basis points and that he saw the pound as “heavy,” poised to drop to $1.28 or $1.29 from its present position near $1.38.

Bailey emphasised repeatedly the need for collaboration among central banks around the world in a globalised economy. Yet as tones grow more hawkish in many countries, including the US and Canada, the UK has opted for prudence.

“At the end of the day, Bailey talks like a hawk and acts dovishly,” Chandler said. “There are shades of former Bank of England governor Mark Carney, who was often talked about as the bad boyfriend who over-promised and under-delivered.”

By Andrew Knoll

Source: Capital

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Sunak says UK economy to grow more slowly in 2022, inflation to jump

UK economy will grow more slowly this year than previously predicted and inflation will be much higher, finance minister Rishi Sunak said as he gave a budget update which included measures to ease a cost-of-living squeeze.

Sunak, announcing forecasts drawn up by the Office for Budget Responsibility (OBR), said on Wednesday the economy was likely to grow by 3.8% in 2022, a sharp slowdown from a forecast of 6.0% made in October.

Inflation, as measured by the consumer price index, is now seen at 7.4% in 2022, compared with October’s forecast of 4.0%.

Sunak is under pressure to offer more help to Britons who are facing their worst cost-of-living squeeze in at least 30 years and he announced a cut to fuel duty of 5 pence per litre starting later on Wednesday and lasting until March next year.

To find out more about how we can assist you with your Second Charge Mortgage please click here

Earlier, data showed Britain’s consumer price inflation hit a 30-year high of 6.2% last month, driven by soaring costs for energy and food, which poorer households especially may find hard to cut back on.

The International Monetary Fund estimates British gross domestic product will grow by 4.7% in 2022, the fastest among Group of Seven nations. The UK economy suffered a COVID-19 slump of more than 9% in 2020 and grew by over 7% in 2021.

The OBR forecast that gross domestic product would grow by 1.8%, 2.1% and 1.8% in 2023, 2024 and 2025, Sunak said.

In October, the OBR had forecast growth of 2.1%, 1.3% and 1.6% over the next three years.

Writing by William Schomberg

Source: ZAWYA

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Soaring inflation is biggest financial worry among UK adults

The biggest financial concern of UK adults, in both the short and longer term, is rising inflation, according to new research from M&G Wealth.

A quarter (25%) of people surveyed cited rising inflation as their greatest financial concern this year, while just more than one in five (22%) respondents said rising inflation was their biggest financial worry for the next five years.

M&G Wealth’s latest research which quizzed 2,000 UK adults who have personally, or who have parents or grandparents who received financial advice from an adviser in the last five years, looked at how individuals felt about their savings habits as the cost of living rises.

Unsurprisingly, the research found respondents were more focused on their short-term financial needs. Beyond rising inflation, worries included ‘my investments losing money’ (18%) and ‘not saving any money’ (17%).

To find out more about how we can assist you with your Second Charge Mortgage please click here

The cost of living played heavily on the minds of respondents. More than a quarter (26%) surveyed said they were worried the cost of living will go up, and so preventing them saving as much as they would like to, while 18% said their bills were too high to allow them to save more.

Savings rates overall were less than desirable. Some 14% of adults save less than £50 per month, and nearly a fifth (18%) of those surveyed said they could not afford to save more.

Looking to respondents’ ‘rainy day fund’, the picture was a little brighter. Nearly a quarter (23%) of those surveyed said they had more than a year’s expenses set aside. However, a third (33%) of respondents had expenses to cover three months or less saved, and 8% of respondents had nothing saved at all.

Les Cameron, savings expert at M&G Wealth, said: “While consumers have no control over rising inflation, currently at a 30-year high and predicted, by the Bank of England, to reach over 7% by the spring, there are steps they can take to take control of their finances.

“From energy bills to their weekly shop, families are starting to feel the pinch, and as a result are unable to save as much as they would like. Many are taking practical steps such as shopping around for cheaper prices to bring down the cost of basics like bread and milk, and setting out and sticking to a budget will help families feel more in control of their spending in the short-term. Though it may feel difficult at the moment, investing any savings, no matter how little, will provide a long-term benefit and hopefully some peace of mind for the future.

“When it comes to savings consumers are understandably worried. Current savings rates are lower than inflation, meaning those with significant cash savings really need to consider whether to accept that inflation is eroding the value of their money, or take some investment risk to try to maintain or grow the real value of their money. Investing is not, however, a decision to be taken lightly and is an area where most people could benefit from receiving some form of financial advice or guidance before going ahead.”


Source: IFA Magazine

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Inflation to accelerate far ahead of Bank of England’s target as rate hikes loom

Inflation in the UK will soar far above the Bank of England’s target this year as the Russia-Ukraine war drives energy prices to record highs.

Accelerating prices will hit “almost all businesses and consumers” this year and choke economic growth, Thomas Pugh, an economist at RSM, warned today, adding that the cost of living could climb as high as nine per cent.

Surging oil and gas prices sparked by the Russia-Ukraine war has led economists at RSM to predict the energy watchdog could hike the price cap a further 75 per cent in October.

Threadneedle Street will trade off shielding economic growth and in exchange for taming inflation by hiking rates at each of its next four meetings and send borrowing costs to 1.75 per cent by November, according to Bank of America.

Rates have not been that high since December 2008, underlining how concerned the Bank is about the cost of living pulling ahead of its two per cent target.

To find out more about how we can assist you with your Second Charge Mortgage please click here

Communication gaffes over the last year have “undermined [the Bank’s] ability to use words to control expectations,” analysts at Bank of America said.

As a result, lifting rates will be the Bank’s main tool to curb price rise expectations.

Poor wage growth coupled with elevated inflation will erode real incomes at one of the steepest rates in peacetime, Bank of America said, adding that household consumption, which accounts for around 60 per cent of UK output, will stagnate for the next 12 months.

Both RSM and Bank of America slashed their forecasts for UK GDP growth this year.

Commodities are widely used by producers across the economy, meaning higher prices will leave them with the choice of either operating with lower profit margins or raising prices to offset higher costs.

The latter increases the risk of creating conditions in which a wage/price could occur, in which workers demand higher pay to maintain their living standards, leading firms to raise prices even further.

Inflation is already at a 30 year high, hitting 5.5 per cent in January.


Source: City AM

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

BoE’s remit is to maintain inflation close to 2%

Part of the Bank of England’s remit is to maintain inflation close to a 2% target level, according to Tom Denman, chief financial officer at Principality Building Society.

Denman said: “It is already more than double this amount, and is predicted to go higher still.”

On Thursday, February 03, 2022, the Bank of England increased the base rate from 0.25% to 0.50%. This was the second increase in the base rate since December. One in five mortgages across the UK are trackers, which means due to the base rate rise, repayments will increase in line with the Bank of England’s decision.

The Consumer Price Index, a measure of the costs of goods and services, hit 5.4% in January, which is above the Bank of England target of 2%.

Denman added: “The MPC has raised rates because they fear that the inflationary pressures being witnessed in the wider economy are becoming entrenched.

“If they do not act to control it, there is the risk that wage inflation will follow as employees demand higher wages to compensate for these price rises.”

To find out more about how we can assist you with your Second Charge Mortgage please click here

As a result, Denman said this would cause firms to have to increase prices further in order to pay for those increased wage demands.
In this way, he believes there is a risk that inflation could spiral, which is something central banks are historically afraid of.

The rate of inflation, already at its highest level for almost 30 years at 5.5%, is tipped by the bank to hit 7.25% in April when the energy price cap is lifted, with bills expected to rise by an average of almost £700 to account for unprecedented increases in wholesale gas costs.

The price cap is currently limiting the rates a supplier can charge for its default tariffs.

Denman outlined that the markets are pricing in a number of base rate increases throughout 2022, beginning with a 0.25% hike in base rate.
“This could take Bank Base Rate to around 1.0% by the end of the year, or even slightly above that level,” he added.

Ben Merritt, director of mortgages for Yorkshire Building Society, said that given the acceleration in inflation in the past year, combined with a hot jobs market, it is no surprise the Bank of England has moved to increase the Bank Rate, and indeed we have had two in quick succession.

“With the Bank of England predicting inflation will peak at over 7.00% in April and remain above the 2% target in 2022 and 2023, the Bank Rate is likely to increase further this year but most economists expect it will probably settle at 0.75% to 1.00%,” added Merritt.

Base rate increases normally result in mortgage rates rising and, while this may happen, Merritt believes intense competition in the mortgage market will mean the cost of borrowing may not rise in line with the bank rate and should still remain affordable.

Further to this, Andrew Bailey, governor of the Bank of England, has warned that large wage and price rises that reflect surging inflation risk embedding rising costs in the economy that will result in “slow activity and increased unemployment”.

He told the Treasury committee of MPs that the so-called second round effects of the energy-led rise in living costs were his “biggest concern” and, if realised, would hurt the least well-off the most and lead to even higher interest rates.

Looking to expectations, Denman said that given the MPC’s behaviour and rhetoric over recent years, he was expecting them to acknowledge the risk that raising rates too far or too fast could have a negative effect on economic growth.

He added: “We also expect them to be mindful of this as we exit the pandemic and go through 2022.”

Overall, Morgan Miles, head of product pricing at Principality Building Society, said: “It has been a tough few years for savers given the low rate environment, so we are happy to be able to increase the interest rates of our savings products.”

Miles went on to detail that Principality Building Society has tried to support savers as much as possible, maintaining an average interest rate on its accounts which has been consistently higher than the market average.

By Jake Carter

Source: Mortgage Introducer

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Inflation hits 30-year high, fuelling expectations of rises in cost of borrowing

UK inflation has climbed to a fresh 30-year high, as the cost-of-living crisis intensifies for households.

Official figures show annual UK consumer prices index inflation rose from 5.4% in December to 5.5% in January.

Annual inflation on the old all-items retail prices index measure surged from 7.5% in December to 7.8% last month, the figures from the Office for National Statistics show.

The rapidly worsening inflation outlook has heightened expectations of further swift rises in UK interest rates from the Bank of England.

Colin Dyer, client director at abrdn Financial Planning, said: “After finishing 2021 on a 30-year high, UK inflation continued to climb in January.

“Households should brace themselves for further acceleration in the cost of living until at least the second half of 2022, particularly when the energy price hike is implemented in April. The Bank of England could also be justified in raising interest rates more than once over the next few months to defend these soaring prices – meaning even more challenges may lie ahead for households.”

To find out more about how we can assist you with your Second Charge Mortgage please click here

Suren Thiru, head of economics at British Chambers of Commerce, said: “Rising inflation highlights both the cost-of-living crisis facing households and the uphill struggle for businesses to keep a lid on price rises amid surging cost pressures.

“While the headline annual figure remains at a 30-year high, the decline in monthly inflation in January offers some hope that we may be nearing the peak in the current spike in inflation. “

He added: ““Inflation should peak at over 7% in April as reversal of the hospitality VAT cut and the energy price cap rise enters the calculation. However, the current Russia-Ukraine tension could keep inflation higher for longer by triggering a further surge in wholesale energy costs.

“Rising inflation could well be a significant drag anchor on UK economic output this year by weakening consumer spending power and damaging firms’ finances and ability to invest.”

The Bank of England has predicted annual UK CPI inflation will peak at 7.25 per cent in April.

A poll published this week revealed a further quarter-point rise in UK base rates next month, to 0.75%, is now forecast by nearly two-thirds of economists.

Twenty-five out of 40 economists polled by Reuters between February 7 and 11 predict the Bank of England’s Monetary Policy Committee will vote for such a rise next month. The next rates decision is due to be announced on March 17.

Meanwhile, 21 out of 41 economists forecast a further rise in benchmark UK interest rates to 1% in the second quarter.

By Ian McConnell

Source: Herald Scotland

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

UK inflation has economy in ‘chokehold’ with peak yet to come

As UK inflation hit a 30-year high of 5.5% in January, analysts have warned that it has the economy in a “chokehold”, with the peak yet to come.

According to the latest data from the Office for National Statistics, the 12-month UK Consumer Price Index was at its highest level since records began in January 1997. The last time it was higher than current levels was in March 1992 when it stood at 7.1%, based on historic modelling.

Laith Khalaf, head of investment analysis at AJ Bell, said: “Inflation is building and is now expected to reach a crescendo of over 7% in April, heaping pressure on consumers, businesses and savers.”

Although the Bank of England, which is expected to continue increasing interest rates on the back of better-than-expected UK job data, believes inflation will sink back down to 2% by 2024, Khalaf noted that inflation is, indeed, “unpredictable”.

“It is prudent to acknowledge that it might possibly tail off, though the bank’s forecasting capabilities haven’t exactly won any awards in recent times. The Ukraine crisis further muddies an already blurred picture.”

To find out more about how we can assist you with your Second Charge Mortgage please click here

Rupert Thompson, chief investment officer at Kingswood, said: “Inflation will head higher still over coming months, likely peaking at around 7.5% in April when the increase in the energy price cap feeds through. Today’s data leave a further 0.25% rate hike in March looking all but a done deal.”

Meanwhile, prices continue to rise while wages remain suppressed.

Chris Beauchamp, chief market analyst at IG Group, stated that markets “will be relieved that the pace of inflation increases appears to have moderated, but today’s further price rises mean consumer spending will keep getting squeezed, heightening the risk of tipping the economy into reverse”.

Rachel Winter, associate investment director at Killik & Co, said: “Inflation has the economy in a chokehold, with prices skyrocketing and consumers feeling significant pressure on their household budgets.

“High energy prices and increased shipping costs are key contributors to this inflationary pressure, but there are other causes for concern in the near term.

“Consumers are braced for next month’s rise in rail fares, growing mortgage payments and higher national insurance, and the Office for National Statistics confirmed yesterday that wages are falling in real terms because they are not keeping pace with inflation. All eyes are on Russia and Ukraine, where conflict would be likely to push oil and gas costs even higher.”

Sarah Giarrusso, investment strategist at Tilney Smith & Williamson, noted that the UK economy remains strong, growing by 7.5% in 2021, representing the strongest growth in the post-war period.

But the Omicron variant of Covid-19 has caused disruptions. “The employment data released yesterday (15 February) showed employment fell 38,000 in January. However, the labour market remains tight with vacancies at their highest level since records began in 2001 and an unemployment rate of 4.1%,” said Giarusso.

“Given this strength and high inflation some economists are expecting the Bank of England will have to be more aggressive than currently signalled by MPC members.”

Willem Sels, global CIO of HSBC Private Banking and Wealth, added that global factors such as supply chain bottlenecks leading to price pressures is likely to see UK inflation continue drifting higher.

“This affects everything from food and clothes prices to cars. There are more local UK factors too, in particular the 54% increase to the Ofgem energy price cap, which will feed through into CPI,” he explained.

“Job figures remain positive but are not enough to offset the squeeze on real household incomes. With inflation exceeding wage growth, real household income will probably fall by 2.5% this year.

“The silver lining? We think the Bank of England will hike interest rates less than the market fears, as it knows that the factors behind inflation are also the drivers behind lower real income, which threaten to limit economic growth. We expect the Bank rate to rise to 1.25%, lower than the markets’ expectation of around 1.75%.”

IG’s Beauchamp added: “Another Bank of England rate rise remains all but certain, but at least this slower pace of CPI increase means the more outlandish expectations will be dialled back. ‘Slow and steady’ are the watchwords for tightening on both sides of the Atlantic, it seems.”

Recent economic data has strengthened the case for more fiscal tightening in the coming months, with consensus expecting a third interest rate hike following the Bank of England’s meeting in March.

At Federated Hermes, the base case is for a further 0.25% increase, although a larger 0.5% rise “cannot be ruled out”, according to Silvia Dall’Angelo, senior economist at the international business of the firm.

“In the short term, the Bank might need to provide a stronger signal and bring some tightening forward to prevent second-round effects from elevated realised inflation against the backdrop of a tight labour market,” she said.

“As the year progresses, the trade-offs the bank faces might change, as high cost-push inflation, fiscal and monetary tightening weigh on the consumption outlook.”

By Alex Rolandi

Source: Professional Adviser

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Bank of England increases interest rates amid inflation concerns

The Bank of England (BoE) has announced that the Monetary Policy Committee has voted to raise interest rates from 0.25% to 0.5%.

Inflation is continuing its upward trend, driven principally by price rises in energy, food, and tangible goods. The Bank’s forecast is that inflation will peak at 7.25% in April once the energy price cap increases by 54%. This will be the highest inflation seen since the early nineties.

The Bank of England is expecting inflation to fall back by the middle of the year, with an expectation that the 2% long term target will be achieved in two years.

Interest rates are the monetary policy lever that can be used to curb or accelerate inflation. Due to the levels of inflation shown above, the Bank has agreed to raise interest rates to 0.5%.

To find out more about how we can assist you with your Second Charge Mortgage please click here

This is following an original increase to 0.25% in October 2021. Analysts are expecting these rises to be the start of a series looking to bring inflation back to its 2% target. This may signal the end of the low interest rate environment seen since the financial crisis of 2008.

Inflation is a key concern for households when wage growth fails to keep apace, which was the case at the turn of the year. The Bank is optimistic, expecting strong wage growth over 2022. This, however, may lead to an increase in the unemployment level toward 5%.

Overall, the Bank of England is feeling relatively optimistic, but it is worth noting that several risks remain entrenched in the global economy over the medium term. The geopolitical stresses, freeing of supply bottlenecks and the ability of employers to peg pay to inflation, all remain unclear.

The inflationary pressure that the Bank is acting upon illustrates why IGD’s Shopper Confidence Index have slumped to historic lows in January.

Source: IGD

Discover our Second Charge Mortgage Broker services.

Marketing No Comments

Bank of England expected to impose back-to-back rate hikes for the first time since 2004

Economists expect the Bank of England to hike interest rates consecutively for the first time since 2004 as the central bank looks to steer the U.K. economy through persistent high inflation.

The Bank fired the starting gun on rate rises in December, hiking its main interest rate to 0.25% from its historic low of 0.1%. Since then, data has shown U.K. inflation soared to a 30-year high in December as higher energy costs, resurgent demand and supply chain issues continued to drive up consumer prices.

The December rate hike came despite the omicron Covid-19 variant spreading rapidly throughout the U.K. and threatening to destabilize the economic recovery once again. However, the Covid outlook has improved in recent weeks, compounding anticipation for a 25 basis point hike on Feb. 3.

To find out more about how we can assist you with your Second Charge Mortgage please click here

“If December’s surprise rate hike decision taught us anything, it was, firstly, that the Bank – and especially Governor Andrew Bailey – is clearly worried about elevated rates of headline inflation and the risk of a virtuous wage-price cycle,” James Smith, developed markets economist at ING, said.

Smith suggested that the high-frequency data points to only a “modest and short-lived” economic impact from omicron, making a 25 basis point hike to 0.5% the most likely course of action.

A ‘less hawkish’ high

Deutsche Bank also expects a 25 basis point increase, and senior economist Sanjay Raja expects the Monetary Policy Committee to vote unanimously in favor of such a move.

“With the Bank Rate reaching 0.5%, we expect the MPC to confirm that all APF (asset purchase facility) reinvestments will cease following the February decision,” Raja said in a note Thursday.

“This would see roughly GBP 28bn of reinvestments (~3% of APF) fall out from the Bank’s balance sheet next month with a further GBP 9bn dropped over the remainder of the year.”

Raja expects the MPC’s primary message to be that more modest tightening will be necessary to keep the economy stable, with economists now expecting inflation to peak at 6.5% and take longer to moderate, remaining above the Bank’s 2% target in two years’ time.

“Worries around rising wage expectations and thus services inflation, alongside lingering supply chain pressures should give the MPC further ammunition for more rate hikes over the next several quarters,” Raja said.

What’s more, Deutsche Bank expects the MPC to highlight the wide confidence bands around the inflation outlook.

“The jump in inflation, and particularly energy bills, should weigh on future demand. Tightening global financial conditions should also restrain global growth, and therefore U.K. external demand, and rate rises should also push up borrowing costs for households and firms, tempering GDP growth,” Raja said.

“We continue to see the MPC projecting excess supply at the very end of the forecast horizon (three years’ out), with inflation sitting below the Bank’s 2% target and the unemployment rate edging up as a result.”

This would enable the Bank to stick with a message of only “modest” tightening, and Deutsche sees another 25 basis points hike in August, followed by further hikes in February 2023 and August 2023, taking the Bank Rate to 1.25%.

BNP Paribas brought forward its call for the next hike from May to February as the Covid situation has improved and inflation continues to run even hotter than expected. The French lender’s economists similarly do not believe the MPC’s messaging will introduce any additional hawkishness, and also expects a 25 basis points hike on Thursday.

“In doing so, we expect the monetary policy committee to kick start the process of balance sheet reduction,” BNP Paribas economists said in a note on Wednesday.

“Still, the MPC is likely to be less hawkish next week than the action alone would imply, while we remain of the view that it will deliver a more gradual pace of rate hikes than is priced into markets.”

By Elliot Smith

Source: CNBC

Discover our Second Charge Mortgage Broker services.