The Bank of England is expected to raise interest rates when its Monetary Policy Committee meets this Thursday (November 4) as inflation continues to rise across the United Kingdom.
Policymakers have intimated that an interest rate hike is imminent, but the central bank needs to determine whether to tighten policy this week or wait until its mid-December meeting, in light of persistent above-trend inflation.
Markets are uncertain about the timing, with analysts suggesting the vote is likely to be split. Some BOE policymakers, such as Governor Andrew Bailey, have hinted that they will support an immediate interest rate increase, while others have seemed more reluctant.
Market data shows that derivatives traders are pricing in a 64% probability of a 15-basis-point rate increase this week.
British inflation slowed unexpectedly in September, rising 3.1% in annual terms, but analysts expect this to be a brief respite for consumers. August’s 3.2% annual climb was the largest increase since records began in 1997, and exceeded the Bank of England’s 2% target.
England’s gross domestic product (GDP) grew 0.4% in August after an unexpected contraction of 0.1% in July, as staff absences linked to the COVID-19 Delta variant surged.
Whether the first tightening of monetary policy comes this week or in December, analysts are broadly in agreement that market expectations mean the British central bank needs to follow through on an interest rate hike this year.