Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Bank of England to take Bank Rate to 5.50% over next two meetings: Reuters Poll

Published 06/26/2023, 08:54 AM
Updated 06/26/2023, 01:46 PM
© Reuters. FILE PHOTO: People walk outside the Bank of England in the City of London financial district in London, Britain May 11, 2023. REUTERS/Henry Nicholls//File Photo

By Jonathan Cable

LONDON (Reuters) - The Bank of England will raise borrowing costs 50 basis points higher than was thought only two weeks ago, in two quarter-point moves, as elevated inflation proves tricker to bring down than had been expected, according to economists polled by Reuters.

Last week, the central bank surprised investors by raising interest rates half a percentage point, taking Bank Rate to 5.00%, and said there had been "significant" news suggesting persistently high inflation in Britain would take longer to fall.

Mortgage rates have already shot up, meaning the 800,000 borrowers who still need to refinance this year, and a further 1.6 million homeowners next year, face much higher repayments.

Bank Rate is now expected to peak at 5.50% next quarter following 25 basis point hikes at the BoE's August and September meetings, medians in the poll taken after the Bank's Thursday move showed.

In a June 14 poll, policymakers were expected to draw a halt at 5.00% next quarter.

"Something has definitely shifted. It's quite hard to reconcile what they said in May with their decision in June so I think they are losing confidence and patience in their models," said James Smith, developed markets economist at ING.

"Are they going to be happy with just one more 25 basis points in August? I suspect not, which is why we have 25 for August and 25 for September and they could even do more."

A cut in borrowing costs was not expected until the second quarter of next year.

Stubborn inflation defied predictions of a slowdown and held at 8.7% in May, official data showed the day before the BoE's decision, and the previous poll suggested it wouldn't be at the 2% target until 2025.

Markets are now pricing in a terminal rate of 6.00% and while that is higher than the poll median, the vast majority of respondents to an extra question, 31 of 34, said the bigger risk to their terminal forecast was that it peaked higher than they currently expect.

Only one economist had a 6.00% peak as their base case.

Over 95% of common contributors to this poll and the June 14 survey, 43 of 45, raised their Q3 forecasts.

Amongst the gilt-edged market makers - primary dealers in UK government bonds - who participated in the latest poll, six had a peak of 5.50%, six said 5.75% and one said 6.00%.

© Reuters. FILE PHOTO: People walk outside the Bank of England in the City of London financial district in London, Britain May 11, 2023. REUTERS/Henry Nicholls//File Photo

Forty of 52 poll participants said the Bank would dial down the pace to 25 basis points on August 3 but gave a high median 40% chance of another 50 basis point lift.

"I doubt that 50bp increments are the new normal until the greedy inflation beast is tamed, but the central bank signalled its willingness to inflict pain," said Stefan Koopman, market economist at Rabobank. "Going against the consensus helps to strengthen this signal."

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.