United Kingdom: A February rate hike is on a knife-edge
Whether or not the MPC raises Bank Rate in February is close to a 50:50 call. We marginally favour a hike because Omicron’s economic damage appears modest, the jobs market has tightened and the MPC is likely to significantly revise up its inflation forecast.
What you will learn:
- But signs of secular risks to inflation, particularly a wage-price spiral, are still missing.
- And with pay growth having slowed, there’s good reason to think the inflation narrative will shift to a less disturbing direction in H2 2022.
- With monetary policy operating over a multi-year horizon, we don’t see a pressing need for the MPC to hike in February.
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