United Kingdom Monetary Policy June 2022

On June 16, the Bank of England (BoE) raised the bank rate from 1.00% to 1.25%, marking the fifth consecutive rate increase. As in the previous meeting, three of the Bank’s nine committee members voted instead to raise rates by 0.50 percentage points.

The Bank’s decision was driven by a desire to curb rising inflation. The Bank now expects inflation to peak above 11% in the fourth quarter, compared with a May forecast of just above 10%, due to the expected revision of Ofgem’s energy caps from October. Moreover, the Bank of England concluded that the price pressure was caused not only by higher prices for imported fuel and food, but also by a limited domestic labor market.

The outlook turned more hawkish as the Bank said it “will take the actions necessary to sustainably return inflation to its 2% target over the medium term” and stands ready to act “strongly” if high inflation continues. Accordingly, our experts are still predicting higher rates later this year, although tightening is still unlikely to be as aggressive as in some other mature markets such as the US.

George Buckley of Nomura shared his betting prediction:

“We […] adjusting our view for a 25 basis point increase at every meeting in the second half of the year – August, September, November and December – to bring the bank rate to a final level of 2.25%.”

Callum Pickering, senior economist at Berenberg, was more optimistic:

“We expect three more increases of 25 basis points in 2022, with increases at every meeting through November. If at this meeting another member voted for 50 b.p. n., this would give a strong signal that 50 b. items may appear in August. […] as the Bank of England appears set to announce a schedule of planned sales of gold securities in August – so-called active quantitative tightening – policy makers may opt for a somewhat aggressive pace of gold sales (or say £5-10bn per month) as an alternative higher rate. hikes.”

The next monetary policy decision will be announced on 4 August.

FocusEconomics Consensus Forecast experts believe that the bank rate at the end of 2022 will be 1.55%, and by 2023 – 1.81%.