Rates set to stay high for some time but peak is in sight, say experts
After 14 hikes in a row, the Bank is expected to pause after one more rise, according to economists.
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Your support makes all the difference.The Bank of England has signalled that rates are unlikely to start coming down any time soon, but experts believe the flurry of rises may at least be coming to an end.
After 14 hikes in a row, with the latest quarter point increase taking the rate to 5.25%, the Bank is expected to pause after one more rise, according to some economists.
While the Bank suggested rates would stay high for longer, saying base rate would be “sufficiently restrictive for sufficiently long to return inflation to the 2% target”, experts believe a predicted sharp fall in the Consumer Prices Index will soon stay policymaker’s hands.
The rate rise cycle is at, or very close to, an end, with perhaps one more 25 basis points increase to come in September
Martin Beck, chief economic adviser to the EY Item Club, said: “A range of forward-looking indicators, from producer prices to money growth, are all pointing to a rapid decline in inflation over the rest of this year and into 2024.
“As a result, the EY Item Club thinks the rate rise cycle is at, or very close to, an end, with perhaps one more 25 basis points increase to come in September.”
Samuel Tombs at Pantheon Macroeconomics said the Bank’s forecasts suggests rates are not set to fall back sharply for some time, with its commentary “broadly endorsing markets’ current expectations for only a modest reduction in Bank rate next year”.
But he too believes that falling inflation will soon persuade policymakers to pause.
“We continue to think that the MPC (Monetary Policy Committee) will raise Bank rate by just 25 basis points in September, and that this will be the last increase in this tightening cycle,” Mr Tombs said.
Economist James Smith at ING said the path forward is unlikely to be straightforward.
He said: “There are plenty of references to the upside risks associated with inflation, as well as the recent surprises in wage growth.
“We shouldn’t be too surprised then that the Bank isn’t offering up much on what it intends to do next.
“The Bank retained its forward guidance that says it could hike again if ‘evidence of more persistent pressures’ shows up in the inflation figures.
“This is the same phrase it has used all year and is sufficiently vague to keep various options on the table for September and beyond.
“That said, there are a few hints that we might be nearing the top for policy rates.”