Bank of England may raise rates up to four times after surprise July growth
July’s stronger‑than‑expected growth has analysts forecasting as many as four interest‑rate hikes from the Bank of England before mid‑2025.
Bank of England analysts say the central bank could lift its benchmark rate as many as four times over the next twelve months after the economy posted an unexpected 0.4 per cent expansion in July.
The surprise in the latest GDP figures has revived confidence that the economy can absorb tighter monetary policy, even as inflation remains a concern. Andrew Bailey, who is expected to chair the next meeting, is tipped to oversee a first hike in November, though the Monetary Policy Committee is likely to keep rates steady at its upcoming session.
"The big worry is that higher energy costs will be passed on as higher prices by businesses and consumers, but it’s likely that the committee will want to see more evidence of that before triggering rate hikes," said Susannah Streeter, chief investment strategist at Wealth Club.
Market reaction
Money markets have already priced in four quarter‑point moves, taking the Bank rate from the current 3.75 per cent to roughly 4.75 per cent by July next year. Andrew Wishard of Berenberg warned that the data gives hawks ammunition for a November or December hike, but added the Bank will need broader evidence of sustained growth.
Tech analyst Angeline Ong at broker IG noted that the surprise benefits members of the Committee such as Huw Pill and Catherine Mann, who have been pushing for a rate increase. "The upside surprise hands ammunition to BoE hawks pushing for a Q4 rate hike, even as gilt yields already sit at multi‑decade highs on Middle East shipping attacks and firm US data," she said.
Outlook for policy
Yield on 10‑year gilts slipped to 5.351 per cent after peaking at 19‑year highs, a modest relief for bond markets. Meanwhile, Brent crude fell more than 2.5 per cent to under $105 a barrel, easing some pressure on energy‑related inflation.
Analysts caution that if consumer confidence wanes, the resulting slowdown could itself help curb price growth, reducing the need for multiple hikes. However, the expectation of three to four moves remains strong, especially if energy and bond market volatility persist.
For a deeper look at how rising yields could affect fiscal policy, see the rising gilt yields could push UK chancellor into emergency budget analysis.
