Bank of England set to hike interest rates in May

By Jill Ward and Harumi Ichikura

Bank of England policymakers will vote unanimously to hold fire this week, but that won’t stop them from increasing interest rates in May, according to economists surveyed by Bloomberg.

The Monetary Policy Committee (MPC), setting out their latest decision tomorrow at noon, will vote 9-0 to keep the UK benchmark rate at 0.5%, most economists said.

Some expect a few hawkish dissenting votes, though data published showing the inflation rate fell more than expected last month may stay officials’ hands.

The percentage of economists predicting a rate increase in May climbed to 54%, the latest survey showed. With a move in two months seen as a shoe-in by investors, Bank of England governor Mark Carney is unlikely to veer from previous guidance that rates may need to rise at a steeper pace than previously thought to prevent the Brexit-hit economy from overheating.

That’s in contrast to the last hike in November, when officials went out of their way to signal an imminent move.

“The MPC will be keen to at the very least preserve, and possibly raise, market pricing for interest-rate rises,” said George Buckley, an economist at Nomura. “We doubt the bank will need to go as far as it did in September, when it felt forced to ‘hand-hold’ the market through a November rate rise,” he said.

Last year a majority of economists didn’t foresee the rate increase until a month before the decision, well after markets had priced it in.

That was the first Bank of England interest-rate increase in over a decade after inflation accelerated beyond the 2% target and output held up better than officials expected in the wake of Britain’s decision to leave the EU. Investors assign a more than 80% probability of a rate increase by May this year, according to money-market data. The Bank of England’s decision is taking place amid a flurry of UK economic data this week, including employment and retail sales reports.

Inflation figures published yesterday showed consumer price growth slowed to 2.7% in February from 3%, as the impact of a weaker currency faded.

There may also be some cheery news on Brexit, which the Bank of England said last month remains the most significant source of uncertainty over the outlook.

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