After a number of central banks across the world have picked up the pace of their tightening cycle, the Bank of England is starting to look like something of a laggard when it comes to raising rates. We expect this impression to be somewhat corrected next week with the Bank hiking interest rates by half a percent.
This is a finely balanced decision, with the various forces buffeting the economy pushing the Bank in different directions. However, we expect the ongoing strength of underlying inflation pressure, combined with the prospect of further fiscal easing in the Autumn will push the bank to opt for a larger than usual 50bps move.
Of course investor attention is not only focussing on short term policy rate decisions but the possibility that the Bank’s mandate comes under greater scrutiny and review following a change in Prime Minister, adding to uncertainty about the likely path of interest rates.