Bank Of England: Hawkish Hints Unlikely

The Bank of England will hold a monetary policy meeting and will announce its decision on Thursday, September 23rd; markets are widely expecting the central bank to keep the key rate unchanged at 0.1%. The Bank of England expanded its Asset Purchase Facility to £875 billion between March and November 2020 to keep the financial system in good shape during the pandemic and is expected to remain unchanged as well.

It is noted that the continued acceleration in the UK inflation rate coupled with the tightening of fiscal policy will affect growth during the winter and without further signs of wage growth, the first-rate hike from the Bank of England is likely to come later than the markets are currently expecting, to rise 15 basis points in November 2022.

The Bank of England will release its latest decision on Thursday at 12:00 UK time. We expect a unanimous vote to keep rates unchanged at 0.1% and an 8-1 vote to keep QE on track for completion in December. 

The question is, will the Bank of England raise interest rates in February 2022? This is when the market is currently anticipating a rate hike, and our view is that if investors are expecting the BoE to confirm those expectations on Thursday, they may be disappointed and expect the first hike to come in November.

Alongside the recent inflation figures and the slowdown in economic growth, the employment sector is recovering somewhat. According to official figures released by the Office for National Statistics, the number of payroll employees increased by 241,000 to 29.1 million in August leading to employment in the entire United Kingdom rising to pre-pandemic levels with the exception of London, Scotland and southeast England.

In August, the Consumer Price Index jumped to 3.2% YoY, the highest in almost a decade. However, policymakers will likely stick to the “transitory” concept and instead focus on growth uncertainties.

In summary, the message expected on Thursday is for the bank to reiterate the ‘modest tightening’ plan over the next few years without a specific timetable.

Even if there are calls for policy tightening at the moment given the recovery witnessed this year; some members of the Policy Committee believe that the tightening conditions have been met.