Saturday, April 13, 2024


Where your horizon expands every day.


The Bank of England is on the verge of a pause in their plans to increase interest rates following an unexpected rise in inflation.

LONDON — The Bank of England will announce on Thursday whether it is halting a run of interest rate hikes that stretches back to December 2021, a day after signs that it had turned a corner in tackling Britain’s high inflation problem.

As soon as official data revealed a surprising decrease in the pace of price growth, investors rushed to make bets on the Bank of England maintaining Bank Rate at 5.25% on Wednesday.

Goldman Sachs and other financial institutions changed their previous predictions for an additional interest rate hike, while investors now believe there is a 50% likelihood of the Bank of England pausing, an increase from the previous 20% on Tuesday.

Some analysts believe that a final increase in the Bank of England’s interest rate is still the most probable result, despite a recent rise in worldwide oil prices. However, they emphasize that the outcome could swing in either direction.

According to JP Morgan economist Allan Monks, we maintain our decision to increase interest rates, but now view it as a 50/50 chance.

The Governor of the Bank of England, Andrew Bailey, and his fellow members of the Monetary Policy Committee have received strong backlash following the increase of consumer price inflation to over 11% in October of last year.

In August, the rate of inflation decreased to 6.7%, approaching the 5% projection set by the BoE for the upcoming months. This aligns with the promise made by British Prime Minister Rishi Sunak to voters in anticipation of next year’s election.

However, it still exceeds the Bank of England’s target of 2% and is the highest among the Group of Seven nations.


Bailey and other leaders have emphasized in the last few weeks that, although they may be nearing the highest point of their series of interest rate increases, they will likely need to maintain high borrowing costs for a while longer, disappointing expectations for rapid reductions.

The Bank of England faces the task of convincing investors that it will remain steadfast and not hastily lower rates, regardless of whether it chooses to raise them once more or not. This is especially challenging as the UK’s already delicate economy displays signs of decline.

According to HSBC’s head of European FX Research, Dominic Bunning, the Bank of England will likely attempt to convey a message of keeping interest rates higher for a longer period of time, similar to the European Central Bank’s approach after their recent rate increase. However, based on past trends, it is expected that once the peak is reached, future rates will decrease significantly.

The Bank of England is concerned that despite the overall economy slowing down, wages are increasing at a historic rate, posing a challenge to their efforts to reduce inflation.

The inflation rate in Britain is nearly twice as high as the rate in the United States. The Federal Reserve chose to maintain its current borrowing costs during their meeting on Wednesday.

The European Central Bank increased rates to an all-time high last week, but indicated that it may take a break.

The Bank of England (BoE) will release its statement on Thursday at 12 p.m. (1100 GMT). No press conference is planned.

In addition to announcing its interest rate decision, the central bank is anticipated to provide information about the upcoming steps of its plan to decrease the collection of government bonds it acquired over the past fifteen years to support the economy during the worldwide financial crisis and the current COVID-19 pandemic. – Reuters