United Kingdom: While March rate hike remains on table, tone to be cautious
Surging energy prices have complicated the MPC’s March policy decision. On balance, we still think the committee will raise Bank Rate to 0.75%, but a bigger hike is now doubtful. Moreover, we expect the MPC will adopt a cautious tone around the pace of subsequent tightening.
What you will learn:
- The jump in commodity prices since Russia’s invasion of Ukraine means inflation is set to peak higher than the 2% target the MPC predicted in February.
- But costlier energy will also have a disinflationary effect by squeezing spending power and weighing on demand.
- Evidence of “second-round” effects of inflation on domestic wages and prices, a key concern of the committee, remains mixed.