Bank of England geared up for 12 consecutive interest rate hikes, yet uncertain future looms

The Bank of England is expected to raise interest rates for the 12th consecutive time as inflation persists, leading some analysts to suggest that the tightening of monetary policy may be drawing to a close. Despite a dip in GDP growth in February due to the cost of living squeeze and widespread strikes stifling activity, the UK’s economy has held up better than expected so far this year. However, there are great disparities in the projections of economists as to how the Bank of England will proceed as inflation remains high and higher than among peers, and the UK is set to be the worst performing major global economy over the next two years. 
 
According to economists, the market almost unanimously expects the Monetary Policy Committee to raise interest rates by 0.25 percentage points to 4.5%. Barclays says that a new qualifier from the Committee might signal that it is nearing the end of its policy of raising rates, while Deutsche Bank’s Senior Economist, Sanjay Raja, echoed projections for a 7-2 split in favour of a 25 basis point hike on Thursday, followed by another quarter-point in June. 
 
Risks appear to be skewed towards a dovish pivot due to the lags in monetary policy transmission and an implicit preference for potential increases during Monetary Policy Report meetings, according to Raja and BNP Paribas economists, who have predicted that Thursday will bring the Bank of England’s tightening cycle to an end. The central bank had projected in February that the consumer price index (CPI) inflation rate would fall from 10.1% in annual headline inflation in March to just 1.5% in Q4 2024. 
 
Updated forecasts will be published alongside the rate decision, including new data on growth, inflation and unemployment. With the UK’s Brexit deadline looming, uncertainty and volatility are expected to continue for the foreseeable future, with a potential impact on monetary decisions.

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