UK Interest Rates Could Rise Four Times Over the Next Year
Drone Strikes Hit Saudi Arabia’s Vital East-West Oil Pipeline Europe's renewable buildout is outpacing… CityAM.com is the online presence of City A.M., London's first free daily business newspaper. Both platforms cover financial and business news as well as sport and… The Bank of England is expected to hike interest rates as many as four times within the next year, City figures have said, after the economy delivered surprise growth in July.
The central bank is expected to be buoyed by this morning’s GDP figures, which saw the UK economygrow by 0.4 per centin July despite forecasts that growth would grind to a halt.
Andrew Bailey is widely tipped to oversee an interest rate hike in November, economists have said, though his Monetary Policy Committee (MPC) is expected to leave rates unchanged when it meets next week.
Money markets are now pricing in four quarter-point hikes by July next year, which would see the Bank rate rise from 3.75 per cent today to 4.75 per cent in less than 12 months.
This morning’s stronger-than-expected growth makes an interest rate hike before Christmas “a touch more likely,” Wealth Club chief investment strategist Susannah Streeter said.
“The big worry is that higher energy costs will be passed on as higher prices by businesses and consumers, but it’s likely that the committee will want to see more evidence of that before triggering rate hikes.
“Given the turmoil in energy and bond markets, however, there is an expectation that we could see three to even four rate hikes over the next year.
However, if the economy slows and consumers turn more cautious, that reticence may do some of the inflation-busting work for the bank.” Economists had expected summer spending boosts caused by the heatwaves and the World Cup to recede in July.
But Friday’s GDP figures are evidence that the UK economy could withstand a hike to rates this year, analysts have said.
Andrew Wishard, an economist at Berenberg, said: “Evidence that [the] economy could cope with a solitary 25bp interest rate hike adds to the risk that the BoE will deliver one in November or December.
“However, as the central bank struggles to trust the official GDP data, broader evidence of solid growth would need to follow this strong outturn to convince it.
Angeline Ong, senior tech analyst at broker IG, said that the economy’s surprise growth will hand more evidence to the MPC’s hawkish members – namely Huw Pill Catherin Mann – as they push for a hike.
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