Exclusive: Bank of England to launch quickest tightening cycle since 2004

The Bank of England will this year embark on the fastest rate hike cycle since 2004 in a bid to tame rampant inflation in the UK, starting at its meeting of rate setters today, reveals an exclusive City PM poll of top City economists.

The first back-to-back rate hike in 18 years is a foregone conclusion today and will signal the Bank’s intent to rapidly shift policy from supporting the British economy through the pandemic to stamping out inflation.

After today, Threadneedle Street will lift rates a further three times, taking them to 1.25 per cent by the end of the year, marking the first time the Bank has raised borrowing costs four times in a calendar year since 2004.

That’s according to the consensus forecast of City PM’s poll of City economists.

Andrew Sentance, a former rate setter and now senior advisor to Cambridge Econometrics, said he expects “three further rate rises this year” after today’s meeting, taking rates to 1.25 per cent by the end of the year.

Several top analysts agree with Sentance. Goldman Sachs and Capital Economics are all pricing in four rate hikes in 2022.

The Bank will defy recent history at one Monetary Policy Committee (MPC) meeting this year and lift rates 0.5 percentage points, Julian Jessop, economics fellow at the Institute of Economic Affairs, is betting.

The Bank’s abrupt hawkish tilt will be triggered by it prioritising eliminating soaring inflation in the UK over the pandemic. 

Most economists polled by City PM think inflation will peak at between 6.5 per cent and seven per cent in April and is unlikely to cool anytime soon.

James Smith, developed markets economist at ING, said the cost of living will “remain at or above four per cent through to the end of 2022,” around double the Bank’s inflation target.

Financial markets are pricing in a 100 per cent chance of governor Andrew Bailey and co hoisting rates today.

At the November MPC announcement, the Bank defied investors’ expectations and left rates unchanged, triggering volatility in financial markets. 

The decision drew sharp criticism after communication in the run up to the meeting indicated the Bank would lift rates.

Sentance this week urged Threadneedle Street to deliver on market expectations to remedy messaging mishaps.