Bigger interest rate hike expected from Bank of England decision makers

The Bank of England could speed up its reaction to runaway inflation figures next week as key decision makers sit down to set interest rates.

Analysts and the market are broadly expecting the Bank’s Monetary Policy Committee (MPC) to add 50 basis points to its base rate.

It would bring the rate to 1.75% from today’s 1.25%, which was set in June.

At that point three members had already voted for the MPC to speed up its rate hikes, as some other central banks around the world have.

“After a number of central banks across the world have picked up the pace of their tightening cycle, the Bank of England is starting to look like something of a laggard when it comes to raising rates,” said Luke Bartholomew, a senior economist at asset manager Abrdn.

“We expect this impression to be somewhat corrected next week with the Bank hiking interest rates by half a percent.”

Back in June Catherine Mann, Jonathan Haskel and Michael Saunders all voted for the half-point increase.

Since then Andrew Bailey, the Bank’s governor who voted against the larger increase, said it is an option at next week’s meeting.

“Markets are putting an 87% chance on a 0.5% increase to 1.75% at this meeting,” said Russ Mould, investment director at AJ Bell.

But the markets are still giving an approximately one in eight chance that rates will not go up by the full half point.

Samuel Tombs and Gabriella Dickens, economists at Pantheon Macroeconomics, argued that market watchers should not take a big hike for granted.

“The MPC’s interest rate decision next week is a very close call, but on balance we think the committee will stick to its slow and steady approach,” they said.

“The MPC began its tightening cycle earlier than the US Fed and the ECB (European Central Bank), leaving it with less need to rush now,” they said.

“We doubt the MPC will judge Bank Rate needs to rise as quickly as markets expect. We expect six members to vote to raise Bank Rate by 25bp, unchanged from June.

“None of the sensible six have implied in speeches that they are leaning towards 50bp.

“Indeed, in the context of current market pricing, Mr Bailey’s utterance that ’50 basis points is not locked in, and anyone who predicts that is doing so based on their own view’ surely is a nod that the market-implied odds of a 25bp hike are too low.”