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Bank of England Seen Hiking Rates Just Once in 2018
Photographer: Chris J. Ratcliffe/Bloomberg
April 17th, 2018 | 10:41 AM | 152 views
For those still guessing what the Bank of England means when it says the tightening cycle will be “limited and gradual,” most economists expect just one interest-rate hike in 2018.
About three-quarters of analysts in the latest Bloomberg survey now see a rate increase in May -- up from 54 percent last month -- although the long term view is less certain. While a significant minority see more action this year, the median forecast for a subsequent hike is not until February 2019.
That outlook is also reflected in markets, where a hike on May 10 is seen as all but a sure thing, and a follow-up in November merely a toss-up.
The central bank has stressed that it would follow a “limited and gradual” path away from record-low interest rates since at least 2014, long before officials hiked rates for the first time in more than a decade in November.
Its doubled-down on the language since the move last year, even with signs that slack has been used up and wage growth is accelerating. They’re now set to hike for the second time in six months -- a faster pace than markets predicted following last year’s move.
Still, doubts about the outlook for future hikes remain. Some economists are concerned that, with Brexit continuing to cloud the horizon and growth and inflation at risk of slowing faster than policy makers expect, the case for further action after May could be derailed. Recent data has fallen short of forecasts, partly as a result of bad weather. Analysts will get another snapshot of the economy this week as the Office for National Statistics reports on the labor market, inflation and retail sales.
“The data aren’t pressuring them to rush ahead with a series of rate hikes,” said Samuel Tombs at Pantheon Macroeconomics. “And of course you also have Brexit going on in the background.”
The mixed picture also reflects the difficulty investors have in parsing the Bank of England’s communication about the future path of rates.
Unlike in the U.S., officials tend to express their outlook in terms of its position relative to current market pricing. In minutes of the March meeting, policy makers merely noted the strong probability assigned to a May hike, without commenting on longer-term expectations for three full quarter-point increases over the three-year forecast horizon.
Last month, Monetary Policy Committee member Gertjan Vlieghe gave a more solid suggestion that the U.K. economy needs “one or two” rate increases per year, although he noted that was a “forecast, not a promise.”
courtesy of BLOOMBERG
by David Goodman and Harumi Ichikura
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