BoE pause bets rise after inflation surprise

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BoE pause bets rise after inflation surprise

LONDON, Sept 21 (Reuters) – The Bank of England will announce on Thursday whether it is ending a series of interest rate hikes stretching back to December 2021, a day after there were signs it was making a U-turn in the fight against the problem has reached high British inflation.

On Wednesday, investors increased their bets that the Bank of England would keep interest rates at 5.25% after official figures showed an unexpected slowdown in price growth.

Goldman Sachs and other banks abandoned earlier forecasts for another rate hike and investors gave the Bank of England a 50% chance of taking a break, up from 20% on Tuesday.

Other analysts said they still believed a final interest rate hike by the Bank of England was the most likely outcome after the recent rise in global oil prices, but stressed the decision could go either way.

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“We’re still betting on a rise, but now we’re looking at it as a coin toss,” said Allan Monks, an economist at JP Morgan.

Bank of England governor Andrew Bailey and his colleagues on the monetary policy committee faced intense criticism after consumer price inflation topped 11% in October last year.

At 6.7% in August, inflation falls to the 5% level that the BoE forecast for the coming months and that British Prime Minister Rishi Sunak promised voters ahead of next year’s election scheduled for next month.

But it is still more than three times higher than the BoE’s 2% target and the highest of the Group of Seven economies.

HIGH PRICES FOR LONGER

Bailey and other policymakers have stressed in recent weeks that while they are nearing the peak of their rate hike streak, they will likely have to keep borrowing costs high for some time, dashing hopes of rate cuts.

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Whether it raises rates again or not, the challenge for the Bank of England will likely be convincing investors that it will stand firm and not rush to cut rates, even as Britain’s already fragile economy shows signs of decline shows a slowdown.

“While the Bank of England will undoubtedly try to spread the message of ‘high interest rates for longer’, as the European Central Bank has done since raising interest rates last week, history tells us that once that happens, future interest rates will fall noticeably Maximum has been reached,” Dominic Bunning, head of European FX research at HSBC, said in a note to clients.

The Bank of England is worried that wages have so far defied the slowdown in the broader economy and are rising at a record pace, threatening to thwart its attempts to bring down inflation.

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Inflation in Britain is almost twice as high as in the United States, where the Federal Reserve kept borrowing costs on hold on Wednesday.

Last week, the European Central Bank raised interest rates to record levels but indicated it would likely take a pause.

The Bank of England’s announcement is scheduled for Thursday at 12:00 p.m. (11:00 GMT). A press conference is not planned.

In addition to its interest rate decision, the central bank is expected to announce details of the next phase of the government bond reserve reduction program it built over a decade and a half to support the economy during the global financial crisis and pandemic COVID-19.

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