Experts and markets generally expect the Bank of England’s (BoE) Monetary Policy Committee (MPC) to hold the bank rate at four per cent at its next meeting, which is happening next week on 23 March.
Investors started to bet more heavily on a rate hold on Monday after the failure of US lender Silicon Valley Bank (SVB).
Interest rate futures put the chance of no change in bank rate next week at about 40 per cent, up from 25 per cent earlier on Monday and around 10 per cent last week. Bets on a quarter-percentage point rate hike fell to about 60 per cent.
At its latest meeting on 2 February, the MPC approved a half-point increase in the base rate to four per cent and maintained the pace of quantitative tightening at £80bn a year.
Research by AJ Bell suggests that at the moment, markets think the BoE will keep the base rate at four per cent at its March meeting and then eke out one more quarter-point rise to 4.25 per cent before ending this rate-hiking cycle. A first cut back to four per cent is the current expectation by year end.
Difference of opinion
However, analysts at Deutsche Bank expect the MPC to increase the base rate to 4.25 per cent next week – but says this will be the final base rate increase in this cycle.
A spokesperson for the bank said: “Our call remains finely balanced, however, particularly with global uncertainty heightened and financial stability risks elevated.
“To be sure, we think that the bar for a pause in March is a lot lower, relative to the Fed or ECB, given the BoE’s more dovish forward guidance in February.”
The Office for Budget Responsibility (OBR) says markets expect bank rate to peak at 4.3 per cent later this year – before falling back to three per cent.
Interest rates have been going up in an attempt to curb inflation, which is currently at 10.1 per cent. However, the Chancellor Jeremy Hunt said on Wednesday in his Budget statement that forecasts suggested inflation would fall to 2.9 per cent by the end of the year.
