The base rate is expected to be increased by a further 0.25 per cent to reach 4.75 per cent, which will be the thirteenth consecutive rate rise. It would the highest rate since 2008 amid the global financial crash.
The Bank of England is resolutely focused on reducing inflation, and is unlikely to move away from its current rate raising cycle.
In the year to April, inflation did fall to 8.7 per cent, while it is a reduction from the 11.1 per cent peak of last October, it’s still way higher than the government’s 2 per cent inflation target.
Last week, the Bank of England governor Andrew Bailey told a parliamentary committee that inflation was taking longer than expected to come down. He also said that the labour market was still “very tight”.
Markets have continued to place their bets on a rate hike, which has pushed the two-year Government gilt yield to its highest peak also since 2008.
Expert view: Rate could go as high as 6 per cent
While there is concensus from the markets and experts that the base rate will rise on Thursday, the question remains by how much and where will it land by the end of 2023 and beyond.
Sanjay Raja, senior economist at Deutsche Bank, said: “We expect the Bank of England to hike bank rate for a
thirteenth consecutive meeting to 4.75 per cent. The odds of a 50bps hike? Despite a run of hawkish data, we think the bar for a more ‘forceful’ hike is high, particularly with bank rate well into restrictive territory.”
The experts at Capital Economics agree on the 0.25 per cent uplift but also believe that the rate will breach 5 per cent in the coming months, eventually climbing to 5.25 per cent.
Ruth Gregory, deputy chief UK economist said: “The recent persistence of inflation leads us to think that the Bank of England will proceed with another 25 basis point rise from 4.50 per cent to 4.75 per cent next Thursday and ultimately raise rates to a peak of 5.25 per cent.
“Meanwhile, given the UK’s longer-lasting inflation problem and shrinking workforce, we think that it will take until late next year for the Bank to cut rates.”
Meanwhile, ING revealed that markets are currently pricing six more rate hikes. which the Bank of England would not look to endorse. This would take the base rate up to around 6 per cent.
The bank also says that the Bank of England would not be seeking to cut rates in the near future as inflation data has come in above expectations. It also expects a base rate rise of 0.25 per cent to be announced this week.
James Smith, developed markets economist at ING, said: “After some unwelcome inflation and wage data, markets now expect the Bank of England to take rates close to 6 per cent over the coming months.
“That equates to almost six additional rate hikes and is very close to the highs we saw in the midst of the ‘mini budget’ crisis last year.”
