Research Briefing | Mar 4, 2022

Rising uncertainty set to limit scale of rate hikes in the United Kingdom

Rising uncertainty set to limit scale of rate hikes in the United Kingdom
Rising uncertainty set to limit scale of rate hikes in the United Kingdom

The week’s data showed further evidence of a decent bounce back in activity after the initial emergence of Omicron, and that inflationary pressures are still building. This is likely to reinforce the MPC’s fears about a wage-price spiral developing and another 25bp rate hike at March’s meeting looks almost certain.

What you will learn:

  • January’s Money & Credit release reported a strong rebound in gross unsecured lending, as the drop in Covid case numbers and relaxation of isolation rules drove a recovery in social consumption activities.
  • But market pricing, which implies a Bank Rate of around 1.75% at the end of the year, looks completely out-of-kilter with the outlook.
  • A worsening real income shock and significant downside risks are consistent with a much more cautious approach, and we expect Bank Rate to finish the year at 1%.

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