The Bank of England is expected to raise interest rates by a quarter-point on Thursday as the central bank attempts to get a grip on inflation. But it’s a close call.
The decision comes after the Federal Reserve opted to keep its rates steady to take a step back and assess the impact of a year and a half worth of aggressive increases. By contrast, economists surveyed by FactSet see the BOE raising rates to 5.5% from 5.25%.
The difference for the BOE is U.K. inflation stands at 6.7%, well above the 2% target. The U.S. inflation rate has receded to slightly above 3%.
Prospects for economic growth are considerably worse in the U.K. than in the U.S. The U.K. could record some of the weakest growth among advanced economies next year as well as one of the highest rates of inflation, according to new forecasts from the Organization for Economic Cooperation and Development released Tuesday.
On the other hand, U.K. inflation came in lower than expected in August. That prompted economists at
Nomura
and
Goldman Sachs
to change their predictions for the BOE decision on Wednesday. They now see rates staying unchanged.
Investors also scaled back bets on a BOE rate hike to reflect a 50:50 chance of a hold.
The U.K. had been considered an economic laggard since the Covid-19 pandemic, but earlier this month the statistics office revised two years’ worth of data. It showed the country has long recovered the output lost during the pandemic and has been in the middle of the pack among Group of Seven countries for growth.
The BOE’s tightening started in December 2021. It has raised rates at 14 consecutive meetings by a total of 5.4 percentage points, the most since the 1980s.
“We’re still tempted to say the Bank of England will hike rates [on Thursday],” said James Smith, a strategist at ING. But “the current tightening cycle is very close to its conclusion.”
In forecasts updated last month, the BOE predicted inflation won’t return to target until the second quarter of 2025 and the economy will more or less be stagnant for the next two years. New forecasts won’t be released Thursday, and Gov. Andrew Bailey isn’t scheduled to hold a press conference.
Last week, the European Central Bank also raised interest rates.
Write to Brian Swint at [email protected]
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