Some economists hold out hope for Bank of England rate hike

The Bank of England would have hiked interest rates sharply to quash the over 10-year high inflation print if the UK was not in the teeth of the Covid-19 crisis, according to City economists.

That’s the prediction from analysts at Bank of America, who today said: “In normal times, the BoE would likely already have hiked rates 40 basis, in our view. These aren’t normal times.”

The prediction came as data released by the Office for National Statistics (ONS) today showed inflation has climbed to its highest level in over a decade, scaling to 5.1 per cent, more than double the Bank’s two per cent target and up from 4.2 per cent.

Threadneedle Street would have acted this month to quash the soaring cost of living, Bank of America added.

However, concern over the potential impact the Omicron variant could have on the UK economy is likely to prompt the Bank to leave rates unchanged at 0.1 per cent, City economists said.

The Bank will announce its next move on rates and QE at noon tomorrow.

Most experts have now kicked their bets into the long grass and expect the Bank to hike rates at February’s meeting.

Goldman Sachs thinks “the MPC [will] vote for a 15 basis point rise in Bank Rate at the February MPC meeting”.

Bank of America agree.

However, there is still a lack of clarity over how concerned members of the Bank’s rate setting are over the historically high inflation.

“Given the lack of a clear steer from MPC speakers and the potential for significant news on Omicron in coming days, it is difficult to have strong conviction at this point for our December BoE call,” Goldman said.

Some analysts are still holding out for a 15 basis point rate hike today.

“The combination of stronger October labour market data and November inflation persistence in and of itself should tilt the MPC’s decision marginally towards lift-off in December – despite the cloud of uncertainty cast by the Omicron variant,” said Sanjay Raja, senior economist at Deutsche Bank.