(Bloomberg) -- Chancellor of the Exchequer Rishi Sunak’s unexpected budget giveaway increased the prospects of a Bank of England interest-rate hike next week.
Economists and investors moved to solidify bets that the U.K. central bank will deliver its first post-pandemic increase in borrowing costs after Sunak defied expectations for fiscal restraint with a 75 billion pounds ($103 billion) of stimulus.
The additional Treasury money will pour into an economy already overheating because of supply-chain bottlenecks that caused shortages of goods and workers. Those strains are likely to push inflation past 5% in the coming months, the BOE’s chief economist has warned, more than double the 2% target.
Investors solidified bets for a rate hike from 0.1% on Nov. 4. They now see rates hitting 1% by May, compared with September on Tuesday, and 1.25% by November.
Investec Bank Plc on Wednesday brought forward its call for a rate hike to next week from February and said it sees a move to 0.75% in 2022.
What Bloomberg Economics Says ...
“The package of measures is likely to pique the interest of the Bank of England as it mulls the appropriate time to lift rates. A move this year looks a little more likely after the Budget.”
--Dan Hanson. Click here for the full INSIGHT
Credit Suisse Group AG and Bank of America Corp. said Sunak’s made action more likely. BofA joined Deutsche Bank AG in seeing a greater chance an immediate end to quantitative easing. The BOE’s 150 billion-pound program of asset purchases is currently due to finish in December.
“We thought the BOE hiking rates while still doing QE, as the BOE argued it would do if it needed to tighten in November, would have been hard to communicate in any case,” BofA economist Robert Wood wrote in a note. After the budget “the BOE may want to tighten more than 15 basis points meaning a QE end could help.”
Read More: U.K. Budget Signals Sunak Embracing Inflation to Erode Debt (1)
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