The Bank of England (BoE) will increase UK interest rates on Thursday but at a slower pace than last month’s 75 basis points rise according to Citi.
The bank forecast the BoE’s Monetary Policy Committee will “decelerate” to a 50 basis points increase this week although it cautioned “75bps remains more likely than 25bps, with the recent data highlighting the ongoing risk of downward real rigidities.”
But it pointed out November’s acceleration primarily reflected credibility issues that have since dissipated in its view.
“With recent data indicating 1) rates already in restrictive territory and 2) slack beginning to emerge, we think there is little in the underlying data compared to September that would now warrant an acceleration” the broker said.
As a result Citi forecast the median voters in the MPC to once again back a 50bps hike, but suggested this could be in the context of a broader four-way vote split.
“From here, we see the risks as increasingly skewed towards smaller increments as the MPC moves from urgent tightening to a more cautious period of close monitoring – especially with respect to the wage data.”
“For the MPC, this effectively means playing for time” it concluded.
The Bank of England will announce its interest rate call on Thursday.