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Bank of England interest rate decision today on a knife edge, City economists predict

Jonathan Haskel, an external member of the Bank of England's Monetary Policy Committee said the bank was still a "long way off" before rates can come down
Jonathan Haskel, an external member of the Bank of England's Monetary Policy Committee said the bank was still a "long way off" before rates can come down

As the City gears up for what everyone expects to be the Bank of England’s 14th straight interest rate rise at midday today, economists are split over how much more pain they think the group of rate setters will heap on the UK economy.

Are the Monetary Policy Committee (MPC) poised to meet market expectations of a 25 basis point increase?

Or will the nine-strong group favour a repeat of June’s larger 50 basis point increase to drive a nail through scorching inflation?

DEUTSCHE BANK: 25 BASIS POINTS, PEAK OF 5.75 PER CENT

It’s a close call, but we now think the MPC will settle for a 25 basis point hike, lifting Bank Rate to 5.25 per cent. The significant upside to wage growth in May will likely be offset by the material miss in headline and services CPI. The labour market is cooling a little faster than the MPC anticipated last quarter. And forward-looking price and activity data continue to point to some downward momentum in underlying price pressures. 

NOMURA: 25 BASIS POINTS, PEAK OF 5.75 PER CENT

Our view is for three more 25 basis point hikes (August, September, November) for a peak Bank Rate of 5.75 per cent, before the MPC embarks on a cutting cycle, but not until the very end of 2024. At that point we expect seven consecutive 25 basis point rate cuts until Bank Rate reaches four per cent by the autumn of 2025. 

INVESTEC: 50 BASIS POINTS, PEAK OF 5.75 PER CENT

Overall we are in little doubt that the MPC will lift borrowing costs for the 14th consecutive meeting. The question is whether it judges that a 25 basis point increase will be sufficient this time or if it needs to opt for another 50 basis point move. In our view this is a very tough call, but we see the committee favouring the 50 basis point option, partly as insurance against the upside risks stemming from the labour market, but also to enable it to get to ‘peak rates’ more promptly.

OXFORD ECONOMICS: 25 BASIS POINTS, PEAK OF 5.5 PER CENT

It’s looking increasingly likely that the MPC will revert to a more standard-size 25-basis point hike, rather than repeating June’s jumbo 50-basis points rise. That investors are now narrowly favouring 25 basis points over 50 basis points gives the MPC cover to dial tightening down. Beyond this month, we’re sticking with our prediction of another increase in rates in September, at which point the present rate rise cycle should come to an end.

BNP PARIBAS: 50 BASIS POINT, PEAK OF 5.75 PER CENT

With both the labour market and services inflation running hot and with only a few signs that momentum is easing we don’t see a 25 basis point hike in August being the finishing line, particularly when we add in the fact that lead indicators of the labour market don’t suggest that much more loosening is on the horizon. We, therefore, expect the MPC to deliver a 50 basis point hike at their August meeting, followed by a 25 basis point hike in September to reach a terminal rate of 5.75 per cent.