Martin Beck, chief economic advisor to the EY ITEM Club, says: “The Monetary Policy Committee’s decision to increase the Bank Rate by 50bps today, after November’s 75bps increase, was in line with the EY ITEM Club’s forecast and market expectations. It also matched last night’s decision by the US Federal Reserve to increase interest rates. Similarly, the three-way split in the vote wasn’t unexpected.
“The minutes of the meeting left the impression that rates are likely to rise further in the new year. But while financial markets see rates peaking above 4.5%, the EY ITEM Club expects that Bank Rate will top out at no higher than 4%. Inflation has likely passed its peak and the EY ITEM Club thinks that the economy is in – or at least close to – a recession, which should help to loosen labour market conditions and will increasingly bear down on inflation.
“In these circumstances, the EY ITEM Club thinks the need to continue to significantly raise interest rates will soon fade and it is perfectly possible that another increase in the February meeting could be the last one for this cycle.”