The Bank of England is facing renewed calls to speed up its planned interest rate hike to curb the impact of inflation reaching a near-30 year high.
The BoE’s monetary policy committee (MPC), chaired by the central bank’s governor Andrew Bailey, are set to meet on 3 February to discuss the current interest rate.
It is thought that the MPC was planning to raise the Bank rate to 0.5 per cent next month, after it was upped to 0.25 per cent in December for the first time in 3 years in a bid to stimulate the post-pandemic economy.
The consumer price inflation (CPI) measure currently sits further above the Bank of England’s target (of 2 per cent) than at any point since the UK first adopted an inflation target in October 1992.
Many economists have called for more urgent action from the central bank, however, in a bid to curb inflation from rising beyond a projected peak in April.
Some of the pressures on inflation are set to be relaxed that month, including the raising of the energy price cap, which many hope will ease the cost burden on energy providers and lead to bills being reduced. Changes to how national insurance is charged and a higher rate of VAT for certain industries are expected to contribute, too.
A squeeze on salaries and an increase in the number of economically inactive people reported by the ONS in this month’s labour figures could also stimulate the Bank to increase rates. In December, the MPC cited spiralling wage growth and a booming jobs market as playing a big part in the decision to increase rates to 0.25 per cent.
Paul Dales, chief UK economist at Capital Economics, has projected that CPI inflation will peak at over 7 per cent in April, due to ongoing pressures on food prices in particular.
He also predicts that inflation will stay above 4 per cent for all of this year and will remain above the BoE’s 2 per cent target until April 2023.
“That’s why we think the Bank will raise interest rates faster than most expect this year, from 0.25 per cent to 1.25 per cent, with the next hike to 0.50 per cent coming on 3rd February,” he added.
James Smith, developed markets economist at Dutch investment bank ING, has predicted that inflation will peak at 6.5 per cent in April and finish the year at 4 per cent.
“Inflation has surprised higher (again) and that’s only likely to increase the temptation for Bank of England policymakers to hike rates for a second consecutive meeting this February,” he explained.
“But with inflation rates set to plunge in 2023, and the prospects of a severe wage-price spiral looking less likely, subsequent moves are likely to be more gradual.
“There are questions as to how worried the Bank should really be about the current levels of inflation. That’s why we think wage growth will assume higher priority in deciding how far to increase the Bank rate this year.”
Melanie Baker, senior economist at the fund manager Royal London Asset Management said that fears about inflation rising beyond April were unlikely to be shaken unless the BoE takes action.
She added: “Many of the sources of rising inflation could still be described as transitory, but with inflation surprising on the upside by so much, with core inflation higher and at such a high level, worries about inflation expectations are also likely to build.
“In the meantime, prospects of higher interest rates, high rates of inflation and pay growth that is not keeping pace means the financial situation of many households will be worsening. The chances of a strong year for real consumer spending are dimming further.”
Source : https://www.msn.com/en-gb/money/other/interest-rates-bank-of-england-under-pressure-to-speed-up-rate-hike-amid-warnings-over-rising-inflation/ar-AASVWxJ692