How high will UK interest rates rise?

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If the central bank is true to its word, it is obliged to raise rates on Thursday. The only question is how much higher they have to go. The BoE said after its May 11 meeting that the Monetary Policy Committee would increase the cost of borrowing further, “if there was evidence of a more persistent trend.” [inflationary] pressures.” According to almost all economists, that test has been passed. Since the meeting in early May, official figures for April showed a sharp rise in core inflation, which excludes items such as food and energy, where prices are generally more volatile, from 6.2% to 6.8%. The measure then increased further in May to 7.1 percent. Over the same period, core inflation remained stable or declined in 28 of the 35 countries tracked by the Financial Times. The BoE did not expect a significant rise in such underlying inflation measures and thought the headline rate would fall to 8.3 percent in May.

In the end, it remained at 8.7 percent. Even more worrying for the BoE are signs that wages and prices are rising in tandem, making inflation harder to eradicate. The latest regular annual wage growth of 7.2 percent was Russia Mobile Number List well above the level the BoE considers compatible with meeting its 2 percent inflation target. With productivity growth at best 1 percent a year, wage growth will need to fall to around 3 percent before the BoE becomes comfortable with persistent inflation pressures. New information since the last MPC meeting means the BoE will need a tough message on Thursday, economists said. Martin Beck, chief economic adviser at the EY Item Club, said: “The MPC criteria for further rate hikes appear to have clearly been met,” adding that a half-point hike on Thursday “is now not out of the question.” You are viewing a snapshot of an interactive chart.



This is most likely because you are offline or JavaScript is disabled in your browser. Economists generally think the BoE will raise rates by a quarter point this week, but could opt for a bigger increase in August, raising the benchmark rate from 4.5 percent currently to 5 or 5.25 percent by mid of the summer. Such is the seriousness of the UK situation that some central bank watchers believe the BoE will have to be much more forceful, at least with its statement on Thursday. Krishna Guha, vice president of Evercore ISI, said the BoE now had to “remove” the second-round effects of a ratchet between higher wages and prices that was “uncomfortably visible in the data.” Although he said the BoE may not ultimately need to raise rates above 5.25 percent, he argued that the central bank should make clear that it was going to squeeze the economy hard in the coming months to prevent the inflation would remain at high rates for longer.