“The Bank of England can stop the rise in rates”

While the Bank of England (BoE) is expected to continue raising interest rates, it is expected to gradually exit the rate-raising cycle. Although there is a downward trend in inflation in the UK, it is expected to take time. The tight labor market is also affecting BoE policies.

Rabobank’s senior macro strategist Stefan Koopman said the BoE can start 2023 with a 50 basis point rate hike. Saying that the policy rate can go up to 4 percent, Koopman said the vote on interest rate hikes is likely to be split between doves again.

Emphasizing that inflation is unlikely to fall perfectly as long as the labor supply remains insufficient, Koopman noted that as the bank tries to stamp out inflation, there may not be any door open for a 50 basis point increase.

Koopman stated that the risk continues that very restrictive frameworks will be effective in slowing down the economy and that the first interest rate cuts may be in 2024.

END OF INTEREST INCREASE CYCLE

Koopman, asserting that inflation expectations can be controlled, said the cycle of rising interest rates globally is slowly coming to an end.

Noting that the February monetary policy report may contain satisfactory assessments in terms of the monetary policy stance, Koopman recalled that there is significant volatility in November sterling assets and that UK natural gas prices They are tall.

Stating that the sharp drop in natural gas futures could be attributed to factors such as mild weather, abundant LNG supply and higher than expected, Koopman noted that gas tanks in Europe are higher than expected and the decreasing demand.

Koopman said that the current situation in the European gas market is surprisingly comfortable, but structural problems still loom for the coming winter months.

THE FORECAST MAY HAVE POSITIVE REVIEWS

However, Koopman said these factors point to a positive revision to the UK’s economic outlook compared to the central bank’s forecast in November, stressing that this could attract both hawks and doves.

Koopman stated that this situation may be reflected in a shallower recession and lower inflation in the short term at the expense of higher inflation in the medium term.

Koopman said that everything is in sight and that the possibility of major interest rate hikes weakens the situation, adding that the case for keeping interest rates high for a long time is getting stronger.

25 IMPORTANT BASE POINTS

Koopman said the bank may increase by 125 basis points in the first half of this year. Berenberg senior economist Kallum Pickering said he expects BoE policymakers to continue to have mixed views on the path of policy in the near term.

For this reason, Pickering noted that there may be a decision that other BoE members disagree on, saying: “Our base case is a 25 basis point rise to 3.75 percent. However, the risks tend to be 50 basis points higher,” he said.

Pickering noted that while the backward inflation and wage data are too hot to stop the rate hike cycle, the current and forward-looking data on economic activity point to weakening demand and downward inflation-reducing momentum. .

Pickering said inflation is expected to decline rapidly in the coming months as the base effects of rising energy prices wear off in 2022 and weakening demand outweighs price pressures in the domestic market.

Indicating that they expect the policy rate to rise to 4 percent in March, Pickering said that if there is a 50 basis point increase in February, there is a risk that the policy rate will rise to 4.25 percent in March.

Pickering predicted that the bank would not start its rate cuts before the fourth quarter of this year.