Wednesday, April 24, 2024

The Bank of England predicted to raise interest rates one more time in May. Rate of interest


A former rate-setter has predicted that the Bank of England is likely to raise interest rates once more to 4.5% in May, before inflation falls “precipitously” over the rest of the year.

Michael Saunders, who until August was a member of the monetary policy committee, said Britain was almost at an “inflection point” for interest rates, which have risen sharply over the past year as policymakers tried to prevent a rise in prices Increase in energy cost.

He said his former colleagues at the Bank of England would likely vote for a final hike in May – which would be the 12th in a row – after which interest rates would be kept steady in the coming months. “I think they will raise interest rates again in the May meeting by 25 basis points … That would take interest rates up to 4.5%,” Saunders said.

“I think we’ll get more of this, maybe a final, increase in May, and then maybe a longer period in which interest rates are pretty stable. The big tightening cycle — interest rate hikes after the meeting — I think it’s That’s pretty much over and for the rest of this year you’ll see inflation coming down, interest rates holding steady.

If Saunders’ prediction proves correct, households are likely to heave a sigh of relief, having seen bills for groceries, heating and other essentials soar in recent months. The surge following Russia’s full-scale invasion of Ukraine has put pressure on Britain’s poorest households, who spend a large proportion of their income on essentials.

Saunders said: “The overwhelming factor behind the increase in inflation has been the rise in energy prices – this has increased household gas and electricity bills, increasing costs for firms. Therefore. [they’ve] Higher services inflation, higher goods, saw a ripple through price inflation and this also contributed to a rise in food prices.

For example, this has resulted in higher prices in stores and on restaurant menus, as businesses try to recoup their own rising costs. “Those indirect, second-round effects of higher energy costs take a while to come through. They’re not over yet, but we’re probably peaking now,” he said.

“Now we are finally at the inflection point. With interest rates having risen sharply … and with agricultural commodities low, wholesale energy prices coming down, we now have an acceleration in inflation for the rest of this year. likely to see a decline from

His comments came days after data from the Office for National Statistics showed inflation fell to a lower-than-expected 10.1% last month. Economists had forecast a decline of 9.8%.

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News about inflation raised the prospect of the Bank of England raising interest rates next month, with markets seeing a 97% chance of a 4.5% increase on 11 May – matching Saunders’ predictions.

UBS economists are also forecasting a further interest rate hike in May, and expect inflation to average 6.5% in 2023 and 2.3% in 2024, before falling to the Bank of England’s 2% target by the end of 2025. Are.