(Bloomberg) -- UK economists say the Bank of England may use this week’s interest rate decision to warn that borrowing costs must remain elevated well into 2024, a move to tamp down growing bets on a reduction by June.

Governor Andrew Bailey and his colleagues on the nine-member Monetary Policy Committee have highlighted lingering concerns about inflation to support their guidance that rates will need to remain at the highest level in 15 years for the foreseeable future.

While none of the economists surveyed by Bloomberg last week expect a change in the key lending rate on Thursday, the BOE is concerned that money markets are pricing in 80 basis points of easing in 2024, up from 50 just after their last decision six weeks ago. Those bets are loosening financial conditions, reducing the impact of the monetary tightening the BOE has delivered.

“We expect to see some pushback on this pricing, in the form of a hawkish split and some stern words,” said Stefan Koopman, a senior macro strategist at Rabobank. “Having been so unlucky with inflation in 2021/22, we think the MPC will remain wedded to a ‘higher-for-longer’ strategy until it becomes painfully obvious that this isn’t tenable.”

A decision is due Thursday at 12 p.m. London time. Since the BOE won’t draw up official forecasts again until February, it’s only the minutes of the meeting that will shed light on the MPC’s thinking, though Bailey may also give remarks to broadcasters.

Signs that rapid rate hikes have cooled inflation but also growth in the UK and world economy have prompted a global shift in markets. Traders are betting that central banks including the BOE soon will turn their attention away from fighting inflation, which has been receding for months, and toward supporting the economy, which is skirting with the risk of recession in the UK.

Separate figures on Wednesday are likely to show UK gross domestic product shrank 0.1% in October — stagnant at best and reviving talk about a more protracted downturn, a survey of economists showed as of Friday afternoon.

The dim outlook has prompted investors to move forward bets on a loosening in policy. Traders now see a decent chance the first quarter-point cut will arrive by May, with such a move now almost fully priced by June.

What Bloomberg Economics Says ...

“The sharper-than-expected slowdown in inflation in the October CPI release gives the Bank of England all the cover it needs to remain on hold at its December meeting. At the same time, we expect the central bank to double down on its message that policy is likely to remain restrictive for an extended period of time — services inflation is too high and there are tentative signs the economy may have regathered some momentum in the fourth quarter. There is still a long way to go on the road to 2% inflation.”

—Dan Hanson and Ana Andrade, Bloomberg Economics. Click for the PREVIEW.

Those bets have created headaches for the BOE by loosening financial conditions and working against the 14 back-to-back rate hikes it has pushed through to stamp out high inflation. The BOE is expected to leave in guidance indicating rates will “need to be sufficiently restrictive for sufficiently long” to contain inflation, which remains the highest in the Group of Seven nations.

Bailey recently warned markets they are “underestimating” on the potential stickiness of inflation, with the BOE expecting price growth to only return to its 2% target at the end of 2025.

Andrew Goodwin, chief UK economist at Oxford Economics, said that Bailey was “quite explicit at the Treasury Select committee a few weeks ago saying that he thought markets were looking at the wrong thing.”

“What they would probably prefer to do this time is the same as last time and say ‘it’s going to be high for a prolonged period of time’, be quite vague about what that means and hope that continues to bash that message home.”

There’s speculation the BOE could also include a rare and more forceful push back against market expectations in the minutes of its December meeting. It included a similar explicit warning to investors in the minutes back at its meeting in November 2022. 

“Much like in November 2022, when the MPC saw market pricing running ahead of itself, the committee may feel emboldened to push back explicitly on market pricing,” said Sanjay Raja, chief UK economist at Deutsche Bank. “While not our base case, the more the market prices in rate cuts, we think the higher the probability that the Bank pushes back.”

--With assistance from Harumi Ichikura and Andrew Atkinson.

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