Economists Expect a U.K. Interest Rate Hike in May

Updated on
  • Previous monthly survey anticipated a move in February 2019
  • May move now seen by just over 50% in Bloomberg survey

Nomura Says BOE Set to Hike in May Amid 3% Inflation

Economists who were slow to predict the first Bank of England interest-rate hike in a decade last year now expect the next one to come in May, but the decision is seen as being on a knife-edge.

In Bloomberg’s monthly survey, 21 of the 41 economists predict a move to 0.75 percent that month, far earlier than the previous prediction in January. Last year a majority of economists didn’t foresee the November rate increase until a month before the decision, well after markets had priced it in.

May Hike

Economists see BOE boosting rates in May, with another following in February 2019

Source: Bloomberg

In the latest survey, a further eight economists see a hike in August, with the accelerated outlook reflecting a shift in market pricing since the start of 2018.

The BOE said Wednesday that companies are expecting to increasetheir pay settlements this year to the highest since the financial crisis due to the rising cost of living, staff shortages and the jump in the national living wage. For the central bank, that’s evidence that currency-driven inflation since the Brexit vote is turning into domestic cost pressures.

Governor Mark Carney said last week that rates may need to rise at a steeper pace than previously thought to prevent the economy from overheating. While Brexit remains a threat to the outlook, the bank is concerned that the economy can’t grow as fast as in the past without generating inflation pressures.

BOE official Gertjan Vlieghe hammered home that message on Monday, saying that more than three increases will be needed across the institution’s three-year horizon.

The median estimate among analysts is for a further tightening in February next year, making them more bullish than markets. Investors see about a 75 percent chance of a hike in three months, from around 40 percent at the start of the year, with a second move fully priced in for May 2019.

— With assistance by Jill Ward

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