Jonathan Cable

LONDON (Reuters – The Bank of England will raise interest rates for the first time. But economists who were polled by Reuters are split on whether it does so as quickly as next month, or if they wait until later next year.

Markets were surprised by Britain’s central banking, but not the majority of economists Reuters surveyed. They left Bank Rate at a record low of 0.10% and continued to surprise them.

Although the average forecast for the Nov. 8-12 poll called for an increase of 15 basis points on December 16, less than half of the respondents, 21 out of 47, predicted the Bank would keep its word. The Bank would likely raise interest rates next month, if they do act. This is the first time since 1994.

“The December meeting has been clearly declared ‘live.’ Marchel Alexiovich from Jefferies said that two labour market reports will prove to be particularly crucial for the MPC.

Both are acceptable, so the MPC might be willing to raise the Bank Rate 15 basis points by December. If the December report shows a soft side, it is prudent to delay the rate decision until February.

Graphic: UK economy and Bank of England policy outlook https://fingfx.thomsonreuters.com/gfx/polling/akpezmerwvr/Reuters%20Poll%20-%20UK%20economy%20and%20Bank%20of%20England%20policy%20outlook.png

Also, markets have largely priced in December’s rise.

Economists had a hard time forecasting a December increase, but a rise for the first quarter in 2022 seems likely, especially in February, when the Bank will publish its quarterly Monetary Policy Report. Only one economist out of 44 forecasts an increase before March ends.

After the initial rise to 0.25 percent next month, medians indicated that the Bank would add 25 basis points to the second quarter. The Bank will then pause until 2023 when borrowing costs will be at 0.75%. The third increase, which was planned for the last half of 2023 in October, was also penciled in.

LAGGARD

The economic recovery of Britain from the coronavirus epidemic lag behind other wealthy nations’ last quarter. On Thursday, official data showed that GDP growth reached 1.3%. It was the slowest growth in three months since Britain was placed under lockdown early 2021.

Brexit has added to the country’s problems, exacerbated by the supply chain challenges resulting from the pandemic.

The impact of Brexit on the pandemic remains unclear. This will change over time. Allan Monks from JP Morgan said that the trade and business investments are likely to be affected by the changes in the trading relationship.

This quarter’s and next’s growth was 1.0% and 0.8%, respectively. Both were lower than last month. The growth rate for 2022 was 5.0%, and 2023 2.1%. Both are unchanged from the previous month. Nearly 75% of the respondents predicted that by March 31, the economy would be at pre-COVID levels.

However, despite the BoE expecting weaker growth, inflation projections are soaring and will continue to exceed the Bank’s target of 2.0% for a much longer time.

Average inflation will be 4.1% in this quarter, 4.2% the next quarter and 4.2% by 2022’s second quarter. Last month, the forecasts were for 3.9% and 4.0% respectively. From October’s 2.8% forecast, now the 2022 average was 3.2%.

Andrew Bailey, BoE Governor, said that last week’s Bank action would be taken if the Bank sees higher inflation driving up wages. Previously it had said that it will have to control inflation expectations.

The unemployment levels are relatively stable. They reached 5.0% in the first quarter of next year, before falling to 4.6%. This is a comfort for policymakers, who continue to debate whether to increase rates.

They should, “I believe. Brian Hilliard from Societe Generale (OTC) said that the labor data were quite strong and expects a December rise.

(For more stories, see the Reuters Global Long-Term Economic Outlook Polls Package)