Bank of England unlikely to raise interest rates

Bank of England to suspend the rise in interest rates further in 2023

The BoE will not increase its rate hikes in the last quarter of the year and may start lowering them until the second quarter of 2024.

According to the most recent UK Economic Outlook report from S&P Global Ratings, the pause occurred as core and service inflation decreased noticeably in August despite levels remaining high.

As per the report, “Still, the bank will unlikely be put at ease until pay growth — still running at 7.8% in July — starts easing, too.”

After 14 straight rate increases, the BoE decided to halt interest rate increases while maintaining its key policy rate at 5.25%.

S&P Global estimates that the BoE might not begin reducing rates once more until the second quarter of 2024.

“In the meantime, the impact of tighter financing conditions is already being felt throughout the economy, but still has some way to go before it reaches its full effect,” the report revealed.

Under the continuing effects of high inflation and monetary policy rates “that will turn increasingly restrictive in real terms as inflation abates”, S&P Global warned that economic growth is expected to stay subdued well into next year, putting the UK on the verge of stagflation.

In the second half of 2024, it said it expects headline inflation to gradually go back to the BoE’s target of 2%.

“This fundamental view of the UK economy remains largely unchanged from our late June forecast. Even so, we have revised our forecast for this year slightly upward, to 0.3% from zero, but downward for 2024 to 0.5% from 0.8% in our previous forecast, shifting some of the slowdowns into next year,” S&P stated.

Nonetheless, the report reveals that there has been positive real wage growth.

“Together with a labor market that should remain firm by historical standards, this should mitigate an otherwise constrained growth environment,” S&P Global stated further.

- Published By Team Timeswire

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