Bank of England to Halt Monetary Policy Tightening, Say Surveys


The majority of economists surveyed by Reuters anticipate that the Bank of England will put a stop to its policy tightening and maintain the bank rate at 5.25% on November 2. That being said, they emphasize that the chances of another rate hike within the year remain considerable.

Despite the unexpected stability of inflation at 6.7% in September, which is the highest among major developed economies, 61 out of the 73 economists surveyed from October 18 to 23 claim that the Bank of England will keep its current approach, aligning with prevailing market expectations.

Only 12 economists foresee a 0.25% rate increase to 5.50% at the November Monetary Policy Committee meeting.

However, 16 out of 28 respondents to a follow-up question believe that the probability of another rate hike this year remains quite high. Despite climbing by 515 basis points since December 2021, inflation still significantly exceeds the Bank of England's 2% target.

The September inflation data closely aligns with the central bank's projections. Bank of England Governor Andrew Bailey mentioned last week that the deceleration in core inflation, which excludes the fluctuations in food and energy prices, is an encouraging development.

Inflation is predicted to recede gradually over the projected timeframe, but it is not expected to reach the target level until the second quarter of 2025. The average inflation rate is expected to be 3.0% next year and 2.2% in 2025.

The consensus among most economists suggests that the initial interest rate reduction is unlikely to occur until July. The average projection anticipates a 25 basis point rate cut during the third quarter. Approximately one-third of economists, however, foresee the Bank taking action earlier.

The prevailing median expectations indicate that the Bank of England will mirror the Federal Reserve's lead by commencing the easing process in the second quarter. The Bank of England is predicted to reduce the bank rate by 50 basis points in the fourth quarter, reaching around 4.50% by the conclusion of 2024.

Average forecasts signal sluggish growth for the UK, projecting an escape from recession but at an exceedingly modest pace. GDP is expected to remain relatively flat after a 0.1% contraction in the last quarter and is anticipated to exhibit slight growth at just 0.1% during the first two quarters of the following year.

In the most recent Reuters survey, 12 out of 31 economists identified a recession (defined as two consecutive quarters of contraction) as their base-case scenario, in contrast to eight out of 23 in the September survey.

The growth forecast for 2024 is at 0.4%, with the economy poised to recover next year, registering a 1.4% growth rate, which is marginally lower than the 0.5% and 1.5% averages from the prior survey.

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