Is this the final raise?
A recent poll conducted by Reuters suggests the Bank of England will increase rates by a further 0.25% next month to 4.25%. The increase is expected to be the final rate increase from the Monetary Policy Committee (MPC) to combat the double-digit inflation figure.
Philip Shaw, Chief Economist at Investec had this to say about the forthcoming rate announcement due on the 23rd March:
“Our baseline case is that the MPC will increase the Bank Rate by a further 25 bps to 4.25% next month as an insurance policy against firmer inflation pressures stemming from the tight labour market.”
Inflation is easing
But the cost of living crisis continues
Inflation has eased with December showing 10.5% with January’s figure now confirmed at 10.1%, whilst this has slowed faster than many had expected it is still well above the Government target of 2%.
The Reuters poll suggested that two thirds of respondents did not expect the cost-of-living crisis to ease for at least another 6 months. Consumers are now battling with increased borrowing costs, high energy prices and increased food costs.
UK avoids falling into a recession
Economy expected to grow next year
The economy did however avoid a technical recession avoid albeit narrowly. The Reuters poll suggests the economy is expected to contract a further 0.4% in each of the first and second quarters and then reduce 0.1% in the 3rd.
“We do still think that the impact of the real income squeeze, ‘bad inflation’ – food, energy and rents/mortgages – and the 390 bps of monetary tightening we have had in just over a year, will weigh on growth in H1 (first half of) 2023,” said Elizabeth Martins, an economist at HSBC.
The UK economy will end this year 0.8% smaller than it started 2023, the poll showed, and then expand 0.8% next year.