Bank of England won’t make emergency rate hike but will go big on Nov 3 – Reuters Poll

By Jonathan Cable

LONDON (Reuters) – The Bank of England won’t raise interest rates before its next scheduled policy announcement on Nov. 3 despite a plummet in sterling but will make big moves in November and December and Bank Rate is now seen peaking much higher, a Reuters poll found.

Britain’s central bank stepped in to try and quell a fire-storm in the country’s bond markets on Wednesday, saying it would buy government debt in an attempt to restore order after new Prime Minister Liz Truss’ tax-cutting plans triggered financial chaos.

But 26 of 30 economists in the Sept. 27-30 poll who responded to an extra question said there was a low or very low chance the Bank raises rates before Nov. 3. Only four said the chance was high.

“Raising interest rates inter-meeting would reflect panic and indicate a central bank that is not in control of policy,” said Brian Martin at ANZ.

“It would box the central bank into potentially limitless interest rate hikes if the BoE starts to defend an arbitrary exchange rate level.”

Sterling fell to a record low on Monday, extending a dive on Friday after finance minister Kwasi Kwarteng unveiled the biggest tax cuts since 1972.

RATES TO PEAK HIGHER

The BoE was one of the first major central banks to start unwinding pandemic-era ultra-loose monetary policy and Bank Rate currently sits at 2.25%, up from the 0.10% it was slashed to as COVID-19 wreaked havoc on the global economy.

Nineteen of the 36 economists surveyed said the Bank would add 75 basis points in November while 13 said it would go for a super-sized 100 bps lift. Only three said it would add 50 bps as it did in its last two meetings while one opted for a mega 125 bps increase.

When asked what the BoE should do in November the median response was to add 100 basis points. But two of the 20 respondents said it should go even bigger with a whopping 150 bps move. Only two said a more modest 50 bps.

Medians showed borrowing costs reaching 3.50% by year-end, suggesting a 50 bps move in December, and the peak rate expectation has risen 125 bps since a poll published just two weeks ago.

Bank Rate was previously seen topping out at 3.00% but that has now moved to 4.25%, to be reached early next year, and the highest forecast was for it to reach 5.75%.

Last week, the U.S. Federal Reserve raised rates by 75 basis points for the third straight meeting and the rate is now likely to peak much higher than previously expected. Many other central banks have also been hiking aggressively.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Jonathan Cable; polling by Maneesh Kumar, Vijayalakshmi Srinivasan and Susobhan Sarkar; Editing by Toby Chopra)