Bank of England: Likely to raise again in September by 50 bps – Rabobank
04.08.2022, 16:23

Bank of England: Likely to raise again in September by 50 bps – Rabobank

The Bank of England raised its key interest rate by 50 basis points to 1.75%, as expected. According to analysts from Rabobank, considering the next UK PM is likely to be Liz Truss, they expect 100 basis points in rate hikes during 2022. 

Key Quotes: 

“Even though the forecast is based on market curves, which takes into account the high probability of Liz Truss receiving the keys of 10 Downing Street, the central bank currently assumes no changes in fiscal policy. This is not realistic. If she will be elected by the Tory membership –and we think she will– it won’t be long before we will see emergency fiscal action. It remains to be seen whether ‘at least £30 billion’, which amounts to nearly 1.5% of GDP, will be deployed, but we expect a combination of significant tax cuts and energy bill rebates to be put in place this autumn.”

“We now expect 100 bps extra rate increases this year: 50 in September, 25 in November and 25 in December. There is a high risk this tightening will be reversed from 2023 H2 onwards.”

“It remains astonishing to see a central bank stepping up its pace of interest rate hikes while forecasting a long recession with a historically weak recovery and a sharp rise in unemployment. It is hard to avoid the conclusion that it has decided a recession and a much softer labour market is necessary to return inflation back towards 2%, even as most of the inflation overshoot finds its origins in international markets.”
 

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