Economists do not expect a new interest rate hike from the United Kingdom

Following the inflation data announced today in the United Kingdom, which showed a deceleration greater than expectations, economists consider that the possibility of the Bank of England (BoE) increasing interest rates at its meeting next month is very remote and the adjustment cycle has ended.

According to data from the Office for National Statistics, the Consumer Price Index (CPI) in the United Kingdom slowed by 4.6 percent annually in October, more than the market expected. Inflation was 6.7 percent annually in September.

Especially in the United Kingdom, which has long stood out as the country with the highest inflation among developed economies, inflation has become sticky despite the official interest rate increase since December 2021.

In the tightening cycle that began in December 2021, when the interest rate in the country was 0.1 percent, the Bank of England increased the policy rate 14 times in a row and raised it to 5.25 percent in August, the highest level in 15 years. After an 18-month tightening cycle, the bank stopped raising interest rates for the first time in September and kept the interest rate constant.

The Bank of England paused raising interest rates for the second time at its Nov. 2 meeting, with expectations that October inflation would decline sharply due to falling energy prices.

IS THE INCREASE IN INTEREST OVER?

Economists believe that, following the inflation data announced today, the possibility of a further increase in interest rates at the Bank of England meeting next month is very slim and that interest rates in the country have already reached their peak. Maximum point.

In his assessment after the inflation data, Deloitte senior economist Debapratim De stated that the sharp drop in inflation in October was an important development and that price pressures continue to ease, saying: “Even so, we still “There is still some way to go for inflation to recover.” return to its pre-pandemic level. However, today’s inflation data supports investors’ view that the Bank of England’s policy rate has peaked. “A further decline in inflation may advance market expectations about the timing of the first policy rate cut next year.” he said.

Capital Economics UK chief economist Paul Dales said inflation, which has slowed more than expected in the country, is approaching US and eurozone levels, saying: “The data from “Inflation may raise expectations among some groups that the Bank of England will cut the policy rate from the middle of next year.” he made the assessment of it.

ING Think Developed Markets economist James Smith said British Prime Minister Rishi Sunak achieved his goal of “halving inflation” with a 4.6 percent fall in October, and the Bank of England should be pleased with these results.

Noting that the decline in services inflation is particularly important for the Bank of England, Smith said: “The data eliminates the possibility of further tightening by the Bank of England this year. The possibility of a further increase in interest rates at the December meeting is quite remote. We expect service sector inflation to fall to between 3.5 and 4 percent next summer. “Taking into account slowing service sector inflation and wage increases, we predict the Bank of England could begin reducing interest rates from August 2024.” he said.

James Smith, director of research at the British think tank Resolution Foundation, stressed that the cost of living crisis continues despite inflation falling to its lowest level in the last two years, saying: “This sharp fall in the inflation will be welcomed by politicians. However, we cannot say that the cost of living crisis is over because the inflation shock in the UK has left a legacy of high prices.” he said. (AA)