BOE will probably split on first UK rate hike in a decade
London: Not everyone at the Bank of England (BOE) will be on board with raising interest rates.
While 2 November may see the UK’s first rate increase in more than a decade, economists surveyed by Bloomberg say three out of nine officials on the monetary policy committee (MPC) will vote against the move. That’s based on the median estimate from 24 responses.
Any divide within the BOE panel reflects the conflicting signals from the economy, which is seeing both a currency-driven inflation surge and weaker expansion. While for some officials, the economy may still be too fragile to endure a rate increase, governor Mark Carney and others see Brexit reducing potential output, making the UK more vulnerable to overheating.
Policy makers Dave Ramsden and Jon Cunliffe may be among those to dissent. Ramsden said this month he doesn’t yet see domestic inflationary pressures building, and Cunliffe said it’s an “open question” when the BOE should lift its benchmark rate from a record low 0.25%. Silvana Tenreyro, described as “neutral” on policy by Bloomberg Economics, has also hinted that she’ll proceed with caution.
The overriding thinking on the committee, however, seems to be that above-target inflation and a shock to supply from leaving the European Union means a rate hike is warranted.
In the buildup to the decision on Thursday, some recent data may have emboldened the more hawkish policy makers. The economy expanded by 0.4% in the third quarter, more than economists expected, and inflation hit 3% last month, a full percentage point above the BOE’s target.
The central bank will update its economic forecasts alongside the policy decision. Compared with August, economists see a chance of an increase in the bank’s inflation estimate for this year.
Even with a division on the MPC, economists forecast that the BOE will keep alive the prospect that further rate increases are on the cards. While another move may not come soon, more than half of those surveyed expect Carney to indicate that markets are still underpricing the odds of future tightening.
Markets see an 88% chance of a rate increase next week, with another priced in by the second half of next year. Bloomberg
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