Bank of England Set for First Rate Hike in Three Years, Eyes 4%

The Bank of England looks ready to raise interest rates by a quarter point to 4%, its first hike in more than three years. Economists expect a clear majority of the nine-member Monetary Policy Committee to support immediate action on Thursday.

MPC Vote and Inflation Outlook

The bank foresees consumer price inflation close to 5% on the back of rising gas and oil prices from the US-Iran conflict. Energy costs have torn into the BOE’s forecasts. UK household bills are projected to rise by at least 25% in January, before a further rise in April. Food prices are also starting to be affected. The BOE says those costs are particularly salient for consumers.

Economists Expect 7-2 Vote

More than three quarters of 35 economists surveyed believe the MPC will vote at least 7-2 for a rate hike. Markets are priced for at least three more increases to 4.75% by next autumn. Investors see December’s decision on a knife-edge, though economists think a second hike is more likely in February. By then, markets currently forecast two full quarter point rate rises, posing a communications challenge for the bank.

Guidance and Forecasts

The BOE’s guidance may be updated to explain how the committee thinks about the threat of above-target inflation. The bank will also publish a new set of forecasts in its quarterly Monetary Policy Report, alongside the decision at 12 p.m. London time.