1 August 2022 - Rate hike confidence wanes as UK economy worsens

Falling headline inflation sees the forecourt price of fuel fall by 10% in some parts of the country. The Bank of England may reconsider its plans to hike rates by fifty basis points at its meeting this week. The fall in petrol prices has gone unheralded, as the gaze of market commentators was fixed upon the prospect of a recession. Surveys show there is little likelihood of any growth in the economy in the next three months. If the Bank of England presses on with its plan to hike by fifty basis points, then a recession becomes even more probable. The MPC has become more hawkish in general in recent weeks, with Catherine Mann taking up the campaign for tighter monetary policy as her colleague Michael Saunders leaves the Committee. He has fought a lone battle for interest rates to rise faster and more aggressively ever since inflation began to rise. In hindsight, Saunders’ campaign may have been justified. If the Bank had been more aggressive when it started to hike rates last December, it might have begun to moderate or even pause hikes by now, providing a degree of support to the economy.