Bank rate to peak at 4.25% before falling next year

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Bank rate to peak at 4.25% before falling next year
[Carlos Jasso/Bloomberg]Experts think the base rate will stay at 4.25% from March until next year
ByRuby Hinchliffe

Experts have predicted the bank rate will peak at 4.25 per cent this year, and remain at this peak throughout 2023, before falling next year.

In a survey published by the Bank of England, rate and monetary policy experts said they anticipate the base rate to rise to 4.25 per cent at the next monetary policy committee meeting on March 23.

Experts then think the central bank will maintain this rate for a subsequent six MPC meetings, before falling back to 4 per cent in the new year.

This week, the Bank of England raised the base rate of interest to 4 per cent, its tenth consecutive rise which marked a 15-year high.

MPC meetingAverage base rate prediction
February 2, 20234%
March 23, 20234.25%
May 11, 20234.25%
June 22, 20234.25%
August 3, 20234.25%
September 21, 20234.25%
November 2, 20234.25%
December 14, 20234.25%
One year ahead of February 20234%
End-Q1 20244%

Source: Bank of England survey

The MPC has said it expects consumer price inflation to "fall back sharply" from its current "very elevated level" of 10.5 per cent in December.

"Annual CPI inflation is expected to fall to around 4 per cent towards the end of this year, alongside a much shallower projected decline in output than in the November report forecast," it added.

The bank's survey of experts also pointed to this. They have predicted inflation to fall to 4 per cent by the end of this year.

QuarterAverage inflation prediction
End-Q1 20239.5%
End-Q2 20237%
End-Q3 20235.7%
End-Q4 20234%

Source: Bank of England survey

Director of partner engagement and consultancy at St James’s Place, Alexandra Loydon, said whilst inflation has crept down slowly since November last year, it’s possibly overly optimistic to expect the Bank of England to start reducing interest rates while inflation is at 10.5 per cent and its target is 2 per cent. 

"The bank’s governor, Andrew Bailey, said earlier this month that there could be a rapid fall in inflation this year after a recent drop in wholesale energy prices, but that shortages of workers across the economy could still pose a major risk.

"The market is therefore already pricing in interest rate hikes for this year so it is not a surprise for rates to rise for the tenth consecutive time, hitting 4 per cent."