The vast majority of economists surveyed believe that the Bank of England may have ended its tightening policy and will maintain interest rates at 5.25% on November 2nd. However, they warn that the possibility of another rate hike this year remains high.
In this survey conducted from October 18th to 23rd, 61 out of 73 economists believe that although the inflation rate unexpectedly stabilized at 6.7% in September, which is the highest among all major developed economies, the Bank of England will not take any action next week, which is also in line with market expectations.
James Smith of Dutch International Group said, "The Bank of England kept interest rates unchanged in September, and there hasn't been much data since then to change this stance. The data we have - wages, inflation - is not much different from everyone's expectations. The most important part is that the impact of previous rate hikes is still evident
Only 12 economists expect interest rates to rise by 25 basis points to 5.50% at the November Monetary Policy Committee meeting.
However, out of the 28 respondents who answered another question, 16 stated that the likelihood of another interest rate hike this year is still high. Despite a cumulative interest rate hike of 515 basis points since December 2021, the inflation rate in the UK is still more than three times the central bank's 2% target.
Elizabeth Martins of HSBC pointed out that "to some extent, when core inflation and service inflation are in a predetermined downward trend, the Monetary Policy Committee may wish to shift towards more neutral guidance. However, we believe that policymakers are not yet prepared to make such changes
Bank of England Governor Bailey stated last week that the inflation data for September was not far from the Bank of England's expectations, and added that the slowdown in core inflation, excluding volatile food and energy prices, was "quite encouraging".
According to the survey, economists generally expect the inflation rate to gradually decrease within the predicted range, but it will not reach the target until the second quarter of 2025. The average inflation rate is expected to be 3.0% next year and 2.2% in 2025.
Most economists say that the Bank of England will not cut interest rates for the first time until at least July next year, with a median expectation of a 25 basis point cut in the third quarter. About one-third of economists expect the Bank of England to take action earlier.
This expected median indicates that the Bank of England will slightly lag behind the Federal Reserve, and another survey shows that economists generally expect the Federal Reserve to begin easing policies in the second quarter of next year, in line with the expected timetable of the European Central Bank.
It is predicted that the Bank of England will cut bank interest rates by 50 basis points in the fourth quarter of next year and will lower them to 4.50% by the end of the year.
Slow growth
The median forecast shows that the UK will avoid an economic recession, but the outlook is not optimistic. After a possible contraction of 0.1% in the previous quarter, it is expected that growth will remain flat year-on-year this year, and only barely achieve a growth of 0.1% in the first two quarters of next year.
Smith from Dutch International Group said, "This is a story of very slow growth in the coming quarters, not a complete and severe recession
Nevertheless, the current market generally expects a highly anticipated PMI survey to be released later on Tuesday to show that business activity has contracted again this month.
According to the survey, 12 out of 31 economists believe that the UK economy will experience a recession, with two consecutive quarters of contraction, compared to only 8 out of 23 economists surveyed in September.
Economists expect a growth rate of 0.4% for the entire year of 2024, but the economy will rebound and grow by 1.4% in 2025, slightly lower than the median of 0.5% and 1.5% surveyed last month.