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Expect four more BoE rate hikes this year, economists warn

Bank of England exterior
Following the figures, Pantheon's Wood said he was "very likely" to shift his call for the first rate cut from August to September.

Better than expected economic growth and a tightening jobs market will coax the Bank of England into lifting rates four more times this year.

That’s according to some analysts’ read of the Bank’s decision to hike rates for the third successive meeting today, sending borrowing costs 25 basis points higher to pre-pandemic levels of 0.75 per cent.

Today’s “BoE meeting and the recent strong data prints (GDP and labour market) suggest that our expectation for a total of six 25 basis point hikes in 2022 is broadly on track,” analysts at Goldman Sachs said.

Others suggested the recent string of hikes are just the early steps in Threadneedle Street’s push to rein in stimulus that is contributing to rampant inflation.

The “move shows that the Bank of England is more worried about the inflationary effects of surging commodity prices than the deflationary effects,” Ian Stewart, chief economist at Deloitte, said.

Tightening monetary policy would also help stabilise the trading environment which has been buffeted by soaring costs.

Kitty Ussher, chief economist at the Institute of Directors, said: “Unstable prices add to the cost of doing business, and it is therefore important that the monetary authorities do everything they can to bring greater confidence into the system at a difficult time.”

However, changes in the wording of the Bank’s forward guidance suggested it wants to rein in market expectations for the pace of tightening this year.

In the lead up to the announcement, investors had been betting rates will land at above two per cent by the end of the year.

“The Committee tweaked its guidance to say that “some further modest tightening in monetary policy may be appropriate in the coming months”; previously “is likely to be” was in place of  “may be”,” Samuel Tombs, chief UK economist at Pantheon Macroeconomics, noted.

Bruna Skarica, vice president at Morgan Stanley, said: “The vote itself was dovish – with no votes for a 50 basis point move and one vote for a hold – suggesting limited appetite for aggressive policy steps in a highly uncertain environment.”

The monetary policy committee’s next decision on rates will be announced on 5 May and will be accompanied by fresh GDP and inflation forecasts.