Bank of England Hikes Rate to 4.5%
The Bank of England (BoE) has hiked rates by another 25 basis points to 4.5% and kept the door open to more if inflation data come in higher than expected between now and the next meeting in June.
Another hike is possible, but with inflation forecasted to be well below target in a couple of years’ time, ING Economics thinks this tightening cycle is reaching its limit.
There are no massive bombshells here – the decision to hike rates was backed by seven committee members, as it was at the previous two meetings.
Lots of the post-meeting headlines will focus on the big upgrades to growth, but ultimately this was flagged by the BoE in its previous set of meeting minutes, and as much as anything else, it reflects lower natural gas prices in recent months.
Importantly, the Bank has retained its deliberately vague forward guidance that further hikes could come if inflation shows greater signs of “persistence”.
Scratch beneath the surface though, and there are hints that this tightening cycle is reaching its limit. Policymakers often point to the inflation forecast for two years’ time, the time horizon over which interest rates have their biggest impact.
“And as we saw in the last set of forecasts from February, the committee sees inflation well below target at around 1% in mid-2025 – and crucially, that’s regardless of whether interest rates follow the path expected by financial markets, or if rates stay fixed at 4.5%.
“Admittedly, some of this will be accounted for by energy, and the committee has made a point of saying the risks are skewed to the upside.
“But the simple fact is that the Bank’s own forecast shows little need to take rates higher. As the chart below shows, it’s unusual that the two-year-ahead forecast is so far below target, ING Economics stated. #Bank of England Hikes Rate to 4.5%
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