Experts predict that annual inflation in the United Kingdom might reach 15% by the beginning of 2023, as more sharp increases in energy prices drive up the cost of living.
On the day of the Bank of England’s next interest rate announcement, experts predicted that price pressures would be higher and endure longer than the Bank had previously predicted.
The BOE monetary policy report, which predicted in June that inflation would peak at just over 11% in October, is a clear indicator of higher official borrowing costs for the sixth month in a row on Thursday, despite evidence that the economy is slowing.
Due to Russia’s ongoing invasion of Ukraine, gas prices are predicted to be roughly 50% higher this winter compared to last.
The official bank rate is the interest rate at which the Bank of England lends to financial institutions overnight. Because it is frequently priced in the market, it is often eclipsed by the BOE Monetary Policy Summary, which focuses on the future.
MPC Meeting Vote
Members of the Monetary Policy Committee vote on where to set the interest rate. Individual votes are published in the MPC Meeting Minutes two weeks later. While short-term interest rates are the most important aspect of currency valuation, most other indicators are only used to forecast how rates will move in the future.
Bank of England Governor Andrew Bailey Remarks
As the situation stands, a 50bp boost appears to be very likely right now, especially in light of recent remarks made by Bank of England Governor Andrew Bailey a few weeks ago that specifically mentioned the possibility of a hike of this level. As the head of BOE, which regulates short-term interest rates, he has the most impact on the value of the country’s currency.
Traders pay close attention to his public appearances since they are frequently used to deliver subtle hints about future monetary policy.
While some major commodities, such as oil, have declined from their heights, the price of gasoline is currently obliterating household budgets. According to one forecast,
‘it is now feasible that inflation will reach 15% in the first quarter of 2023.’
A top economist noted, said:
‘The outlook for inflation is highly uncertain, largely driven by unpredictable gas prices, but changes over recent months suggest that the Bank of England is likely to forecast a higher and later peak for inflation – potentially up to 15 per cent in early 2023”.
‘While market prices for some core goods – including oil, corn and wheat – have fallen since their peak earlier this year, these prices haven’t yet fed through into consumer costs and remain considerably higher than they were in January.’
GDP Forecast
Later today, analysts will be on the lookout for the Bank of England’s inflation projection as well as forecasts for the gross domestic product (GDP).
The National Institute of Economic and Social Research (NIESR) released new findings this week that indicated the UK is approaching a recession. As a result, economists will likely be closely watching the actions taken by the Bank of England later on in the day.
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