Bloomberg "UK Base Rate Hike Expected in May Next Year"

UK Consumer Price Inflation Trend [Image source= Bloomberg]

[Asia Economy Reporter Park Byung-hee] With soaring inflation and a sharp decline in unemployment, there are forecasts that the UK will raise its base interest rate in the first half of next year.

On the 15th (local time), the UK Office for National Statistics announced that the number of unemployment benefit claimants in June decreased by 114,800, marking the largest drop ever. The consumer price inflation rate for June, released a day earlier, exceeded market expectations at 2.5% year-on-year, compared to 2.2% expected. The UK's consumer price inflation rate surpassed the Bank of England (BOE)'s monetary policy target of 2% for the second consecutive month, following 2.1% in May.

Given this situation, hawkish voices have begun to emerge among the moderate BOE Monetary Policy Committee members. On the 15th, Michael Saunders, a BOE Monetary Policy Committee member, said that the BOE should consider tapering quantitative easing within the next one to two months. The day before, Dave Ramsden, BOE Deputy Governor, stated, "The tightening conditions appear to be met faster than expected."

Both Ramsden and Saunders had supported the current quantitative easing policy of ?150 billion at last month's monetary policy meeting but have since changed their stance.

At last month's monetary policy meeting, the only dissenting voice was Andy Haldane, the Chief Economist. However, Haldane's term expired at the end of June. With Haldane, the BOE's strongest hawk, stepping down, there were expectations that the BOE would lean more dovish. However, it now appears that the previously moderate members are shifting toward a hawkish stance.

Dan Hanson, Senior Economist at Bloomberg Economics, said, "A significant change is happening," adding, "Saunders has previously led changes in the Monetary Policy Committee, and some opposition to quantitative easing is expected at the August meeting."

The BOE's current base interest rate is a historic low of 0.1%. Bloomberg reported that among traders, there is speculation that the BOE could raise the base rate to 0.25% as early as May next year. Furthermore, if current expectations hold, the UK would raise its base interest rate one year earlier than the United States.