Experts: The Bank of England will continue to raise rates amid high inflation

Market participants expect that the Bank of England will continue to raise the key interest rate against the background of still high inflation, active wage growth and unexpected stability of macroeconomic indicators.

In November last year, the British economy grew by 0.1% compared to October. This suggests that the country still did not slip into recession in the last quarter of last year, as most economists expected. Moreover, in the three months to November, 27 thousand new jobs were created in the country, and nominal wages are growing at an almost record pace.

Meanwhile, inflation slowed to 10.5% in December (from 10.7% in November), while the rise in prices for services accelerated.

Thus, against the background of such data, the market sees a 67% probability of another rate hike by 50 basis points at the next meeting, which will be held on February 2. Currently, the rate level is 3.5%, whereas at the beginning of last year the rate was only 0.1% per annum.

Economists believe that in February, the Bank of England will have to tighten monetary policy even more in order to reduce inflationary pressure in the medium term. Moreover, it is too early to say that the British economy has managed to avoid a recession. 

According to recent data, the consumer confidence index in the UK in January decreased by 3 points and amounted to –45 points. Retail sales in the country in December fell by 1% compared to November. A reduction in activity is also observed in the housing market.

Such ambiguous data can lead to a split within the board of the regulator, which includes nine members. In particular, a number of members may vote for a more moderate rate hike.