Bank of England must keep raising rates to finally kill off inflation, City experts say
The Bank of England should not yet let up on raising interest rates to ensure inflation has finally been defeated.
Signs of sticky price pressures require further rate rises, experts claim.
But by what magnitude? And when will we finally reach the peak?
Experts have their say.
BNP Paribas
“It will take much more than one negative surprise for the MPC to be confident that underlying inflation is sustainably turning down…. we think the MPC will look at the totality of the data, and last week’s labour market figures will raise serious questions about the durability of the decline in services inflation. Overall, while the data are encouraging at face value and mean that another 50bp hike at the August meeting is not a done deal, we think they still tilt the balance in favour of another 50bp move.”
Pantheon Macroeconomics
“A watershed moment. June’s CPI report gives the MPC the green light to increase Bank Rate by 25bp next month, rather than by the hefty 50bp increment priced-in by markets as the most likely outcome. The headline rate in June matched the Committee’s forecast in May’s Monetary Policy Report, a massive improvement from May’s figures, which overshot its forecast by 0.4pp.”
Yael Selfin, chief economist at KPMG UK
“While the Bank of England will welcome the fall in inflation, it is unlikely to substantially change its hawkish policy stance as inflation continues to run significantly above target.”
James Smith, developed markets economist at ING
“We now expect headline inflation to dip back to 6.6% in July, owing to the near-20% fall in household energy prices. Core inflation should slip back to roughly the same level too. Is this enough to convince the Bank of England to opt for a 25bp rate hike in August? We think it probably will – but it’s going to be a close call. The Bank will also be looking at the recent wage data, which was stronger than expected.”
Paula Bejarano Carbo, associate economist at the National Institute of Economic and Social Research
“Measures of underlying inflation also eased slightly in June: for example, core CPI and services inflation both fell from 31-year highs of 7.1 per cent and 7.4 per cent, to 6.9 per cent and 7.2 per cent, respectively. Though these are all welcome falls, it remains concerning that these measures of underlying inflationary pressures continue to plateau around 7 per cent, well above the Bank of England’s target of 2 per cent.”
Paul Dales, chief UK economist at Capital Economics
“The UK will probably still have higher rates of inflation than elsewhere for a while yet, but at least it is now following the global trend… With wage growth and services CPI inflation both currently stronger than the Bank had expected back in May, we think there is enough evidence of “more persistent pressures” to prompt the Bank to raise interest rates a little bit further than we previously thought [to 5.5 per cent].”