At least two members of the Bank of England’s Monetary Policy Committee are expected to vote in favour of raising interest rates this week, markets predict.
Huw Pill, the Bank’s chief economist, is expected to lead calls for interest rates to rise, according to a number of banks.
The overall balance of votes is expected to be 7-2 in favour of leaving interest rates unchanged at 3.75 per cent.
Analysts at BNP Paribas, Goldman Sachs and JP Morgan expect hawkish policymakers to push back against leaving interest rates as they are.
Mr Pill has repeatedly warned interest rates have been cut too rapidly in the last two years, from a peak of 5.25 per cent in mid-2023.
In a speech last year, Pill said the Bank should have been more ‘cautious’ in its approach to trimming interest rates.
Key vote: The Bank of England is voting on UK interest rates on Thursday
During 37 meetings, Pill has voted to raise interest rates 14 times and only backed reductions twice.
By contrast, MPC member Swati Dhingra has voted to reduce interest rates in 17 of 29 meetings.
External member Megan Greene is, according to some analysts, expected to join Pill in voting in favour of an increase to the base rate.
Some economists believe Pill could argue at the vote on Thursday that the energy price shock from the war in Iran Iran war could prompt a fresh inflation spike.
Both the OECD and the IMF have claimed that Britain economy would suffer from higher price growth than the average across G7 nations as a result of war across the Middle East.
Pill said recently that monetary policy could be used to ‘contain’ an anticipated rise in inflation.
Research from Deutsche Bank found that divisions in the MPC have been ‘historically high’ in the tumultuous years since the Covid-19 pandemic.
Inflation rose to 3.3 per cent in March, in line with expectations, according to figures from the Office for National Statistics last week.
The Consumer Prices Index (CPI) increased from 3 per cent to 3.3 per cent as the impact of the Iran war started to feed through to the economy.
Core CPI, which excludes energy, food and alcohol, was 3.1 per cent, down from 3.2 per cent in February, but services inflation jumped from 4.3 per cent to 4.5 per cent.
Food and non-alcoholic drink inflation surged to 3.7 per cent, from 3.3 per cent in February.
Government borrowing costs rose yesterday as the higher price of oil fuelled fears of an inflation shock and higher interest rates.
The ten-year gilt yield hit 5 per cent for the first time since late March, while the 30-year yield rose above 5.7 per cent – its highest since September last year.
Although the Bank is expected to hold interest rates at 3.75 per cent on Thursday despite the inflation threat, investors are ramping up bets on a hike to 4 per cent this summer and 4.25 per cent or 4.5 per cent by the end of the year.
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