Bank of England governor Andrew Bailey warned today “nothing is decided” yet by the monetary policy committee about interest rates and talk of a peak was premature.
“At this stage, I would caution against suggesting either that we are done with increasing the Bank Rate, or that we will inevitably need to do more.
“Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided,” Bailey said in a speech at the Cost of Living Crisis Conference on Wednesday morning.
With markets having lifted rate expectations to a peak of 4.75% by the end of the year from a previously predicted peak of 4.25% a month ago, versus the current base rate of 4.0%.
Bailey suggested the recent macroeconomic data had not justified this change in outlook.
As a result, markets today reduced their expectations for further increases in the base rate.
“Rightly” so, said Sam Tombs at Pantheon Macroeconomics, adding that following the speech it was fairly clear that “markets need to price in a higher chance of no-change in bank rate”.
His firm's base-case view is that the meeting on March 23 will see no hike, but there is a 40% chance of a 25bp rate rise.
"Either way, it is clear from Bailey’s speech that [the MPC] is placing more emphasis on the substantial tightening already delivered and would like to call time on its hiking cycle as soon as it feasibly can."
However, Bailey did try to keep markets on their toes, with a warning about complacency.
"If we do too little with interest rates now, we will only have to do more later on," the BoE governor said. "The experience of the 1970s taught us that important lesson."