MPC to hike again as UK inflation trumps growth worries

High inflation and a tight jobs market, muddied by signs of sagging momentum in the UK economy, present a complicated backdrop to the MPC’s meeting in June. On balance, we expect another 25bps rise in Bank Rate to 1.25%, but with the MPC becoming more divided.

What you will learn:

• With the MPC caught between the rock of supply-side constraints and the hard place of weakening demand, the committee is likely to be cautious in its language about the pace of future tightening and continue to push back against still-bullish market rate expectations.
• We doubt the extra fiscal support announced by the government will trigger any serious hawkish shift in the MPC’s thinking.
• Assuming June does deliver a rise in Bank Rate, we stick with our expectation of one further hike this year, leaving the policy rate at 1.5% by year-end 2022.