The Bank of England is likely to feel compelled to continue increasing interest rates beyond its current level of 4% as UK inflation jumped unexpectedly in February, according to Nigel Green, the CEO and founder of deVere Group.
Consumer Price Inflation rose to 10.4% in February, up from 10.1% in January, and far higher than economists and City commentators had been forecasting.
The published figures put pressure on the BoE to raise rates to 4.25% when its Monetary Policy Committee, chaired by Governor Andrew Bailey, votes at midday on Thursday 23 March.
With the collapse of US mid-tier banks and the forced sale of Credit Suisse to UBS, some observers had called for rates to fall, or at least remain unchanged.
The CEO of the deVere Group, an independent financial advisory, asset management and fintech organisation, added his voice to the expectation that the Bank will raise rates.
He said: “The rise in inflation comes as a shock, as most analysts had forecast a fall to 9.9% amid reducing gas and oil prices and the lower cost of raw materials on global markets.
“Inflation had fallen for the previous three months, coming down from a peak of 11.1% in October to reach 10.1% in January.
“But the data shows that food prices and non-alcoholic beverages in the UK surged at their highest rate for 45 years.
“This really puts pressure on the Bank of England to increase interest rates again on Thursday. The Bank officials will also be vigilant about wage growth which remains high but is slowing, whilst the latest labour market data reveals continued tightness.”
The deVere CEO added: “We expect that the Bank will reiterate that their primary focus is bringing down stubbornly high inflation.
“This is despite growing fears over the unfolding confidence crisis in the global banking system following the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank in the US earlier this month, and the weekend rescue of the institutionally critical Swiss bank, Credit Suisse.
“We expect that the Bank of England on Thursday will announce a rise of 25bps to take rates to 4.25%, and possibly signal a pause in its hiking cycle moving forward.”
The UK central bank knows that besides having to try and cool sticky high inflation, they also need to ensure financial stability. The events of the last week which rocked markets and investor sentiment will certainly give them cause for pause after the likely rate hike on Thursday.
“A signal of stepping back from interest rate hikes would be welcomed by investors who are concerned that overtightening now – when monetary policy time lags are notoriously long – could steer the economy into a recession,” notes Nigel Green.
“The Bank of England are in a challenging spot of having to hike rates to bring down inflation while attempting to combat fears of systemic risk and instability that has been rippling through global markets in recent days following the banking crises in the US. But it will be soaring prices that will be front and centre in their decision-making process,” he said.