August 3rd is the day economists, dealers, analysts et al, expect the Bank of England to raise the interest rate by 25 basis points to 5.00%, though some commentators are suggesting a repeat of the full half-point hike as was seen in June of this year. This potential hike is a reflection on how difficult the Bank of England is finding the fight on inflation, and whilst both the European Central Bank and the Federal Reserve raised interest rates by 25 basis points this week, the common consensus is that they are both nearing end of their rate-tightening policy.
Experts and investors are currently split 50/50 between peak rates of 5.75% and 6.00%, as earlier this month, on July 11th, data released showed record growth in wages prompting the markets to suggest a peak rate of 6.5%. However, this figure retreated to the above-mentioned split when further data released reflected a decline in consumer price inflation which dropped from 8.7% to 7.9%.
However, inflation in the United Kingdom is double the rate in the United States and sits at four times the Bank of England’s stated target of 2%. Some experts suggest the recent decline in consumer price inflation was more to do with energy prices and the short-term moves within that sector with long-term pressures still weighing heavily on the economy.
Elsewhere, thanks to the increase in rate expectations mortgage costs are now at their highest point which was last seen in 2008 and other sectors such as house building are feeling the effects of higher interest rates and a survey last Monday 24th July showed that growth in the private sector had fallen to a six-month low. As for the job market, figures for wages released for the three months to May 2023, are the joint-highest since 2001, (when records first began), reflecting a growth in wages (not including bonuses) of 7.3%. Unemployment rose to 4%, a 16th month high as employers advertised fewer jobs and more people entered the job market.
It is also expected that the Bank of England will along with the rate decision update their forecasts on both inflation and on growth. These are expected to be lower than the forecasts made back in May of this year as a consequence of the higher market rate expectations. The Bank of England will continue to wage war on inflation which will mean further tightening, and we can only hope this cycle will end sooner rather than later.