The Bank of England started early, but has raised rates in smaller steps than its peers which are tightening policy in 50, 75 and even 100 basis-point increments. But a half-percentage point rise to 1.75% is possible on Aug. 4, which would be the biggest since 1995.
JPMorgan and HSBC are among those predicting a 50 bps move. While only three BoE policymakers favoured 50 bps at the last two meetings, data since then has shown inflation reaching 9.4%, a 40-year high. It could hit 12% by October – six times the BoE target.
Governor Andrew Bailey has pledged to act forcefully if needed. Yet, given the BoE sees barely any UK economic growth before 2025, a Reuters poll forecasts, by a slim margin, the BoE will stick with 25 bps.
The bank must then contend with the risk that a smaller hike triggers a sterling selloff, further fanning inflation.