Bank of England to be first major bank to hike rates,
probably in December - economists polled by Reuters
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[November 12, 2021] By
Jonathan Cable
LONDON (Reuters) - The Bank of England will
be the first major central bank to raise interest rates but whether that
initial increase comes as soon as next month or if it waits until early
next year has divided economists polled by Reuters.
Britain's central bank surprised markets - but not a majority of the
economists Reuters surveyed in October - by leaving Bank Rate unchanged
at a record low of 0.10% last week.
While the median forecast in the Nov. 8-12 poll was for a 15 basis point
increase on Dec. 16, just under half of those polled, 21 of 47, said the
Bank would hold firm. If it does act next month it would be its first
December hike since 1994.
"The meeting in December is now clearly 'live'. Particularly important
for the MPC will be the two upcoming labour market releases," said
Marchel Alexandrovich at Jefferies.
"If both are decent, the majority of the MPC could well be minded to
increase Bank Rate by 15 basis points in December. However, if the
December report is on the soft side, then it would clearly be more
prudent for the decision on rates to be delayed until February."
![](http://archives.lincolndailynews.com/2021/Nov/12/images/ads/current/christianvillage_sda_SPONSOR_042720.png)
Graphic: UK economy and Bank of England policy outlook
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gfx/polling/
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Markets have also largely priced in a December rise.
While economists' forecasts for a December increase were on a knife
edge, a rise in the first quarter of 2022 appears baked in, most likely
in February when the Bank publishes its quarterly Monetary Policy
Report. All but one of 44 economists are forecasting an increase by the
end of March.
Following that first rise to 0.25% next month, medians showed the Bank
adding another 25 basis points in the second quarter before pausing
until the beginning of 2023 when it will take borrowing costs to 0.75%.
In October, that third increase was pencilled in for the latter half of
2023.
LAGGARD
Britain's economic recovery from the coronavirus pandemic lagged behind
that of other rich nations last quarter. Official data on Thursday
showed GDP growth of 1.3%, the weakest three-month growth since the
country was under lockdown in early 2021.
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![](../images/111221PIX/2021-11-12T112514Z_2_LYNXMPEHAB0NA_RTROPTP_4_BRITAIN-ECONOMY-POLL_small.JPG)
People walk past the Bank of England during morning rush hour, amid
the coronavirus disease (COVID-19) pandemic in London, Britain, July
29, 2021. REUTERS/Henry Nicholls/File Photo
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The country faces the additional headache of Brexit which has further
exacerbated supply chain issues caused by the pandemic.
"It remains difficult to disentangle the impact of the pandemic from Brexit,
which will become clearer through time. But the relative weakness in business
investment and trade likely reflects some impact from the new trading
relationship," said Allan Monks at JP Morgan.
Growth in this quarter and next was put at 1.0% and 0.8% respectively, both
weaker than predicted last month. Across 2022 growth was forecast at 5.0% and in
2023 at 2.1%, unchanged from last month. The economy was expected to be back to
pre-COVID levels by the end of March, almost 75% of respondents said.
But while weaker growth would likely stay the BoE's hand, inflation forecasts
have increased dramatically and will remain more than double the Bank's 2.0%
target for a longer period.
Inflation will average 4.1% this quarter, 4.2% next and 4.2% in the second
quarter of 2022. Last month the respective forecasts were for 3.9%, 4.0% and
3.5%. The average for 2022 was now seen at 3.2%, up from October's 2.8%
forecast.
BoE Governor Andrew Bailey said last week the Bank would act if it sees
expectations of higher inflation pushing up wages, having previously said it
would have to act to contain inflation expectations.
Unemployment levels were seen pretty stable, peaking early next year at 5.0%
before drifting down to 4.6%, giving some comfort to policymakers who are
debating whether or not to raise rates.
![](http://archives.lincolndailynews.com/2021/Nov/12/images/ads/current/graue_sda_042021.png)
"I think they should. The labour data are quite strong," said Brian Hilliard at
Societe Generale, who expects a December increase.
(For other stories from the Reuters global long-term economic outlook polls
package)
(Reporting by Jonathan Cable; Polling by Mumal Rathore and Milounee Purohit;
Editing by Ross Finley and Toby Chopra)
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