The Bank of England raised UK interest rates by a quarter point today but where this is the peak if monetary tightening is still subject to much debate.
ING Economics thinks the Bank is keeping its options open regarding future policy.
Like last month, it has indicated it could hike again if inflation is continuing to show signs of “persistence”.
"Our read of that phrasing is that officials are less beholden to month-to-month swings in the data than perhaps the Federal Reserve/European Central Bank and are trying to take a more top-level look at pricing-setting behaviour," economists at the bank said.
"It’s this that will determine whether the Bank hikes again in May - and for now we think it won’t, though another 25bp move is possible if the inflation data turns more hawkish."
Capital Economics thinks the Bank of England may not yet be finished in its battle with inflation.
"We continue to forecast that the Bank will hike rates once more in May, to 4.50%, before cutting rates in 2024 further and faster than is currently discounted in the markets," analysts at the economics bureau said.
"It is the data on the persistence of inflation that will determine whether or not rates rise further," they suggested.
"We are sticking with our view that the rates will be raised once more to a peak of 4.50%, most probably in May."
"And with the banking turmoil likely to accelerate the coming economic weakness, we are becoming a bit more confident in our view that in 2024 rates will be cut to 3.00%. That’s more cuts than investors currently anticipate," they pointed out.
Laith Khalaf, head of investment analysis at AJ Bell said: "Stubbornly sticky inflation has prompted the Bank of England to raise rates again, but from here on in monetary policy is likely to be become more tentative while the bank surveys the economic impact of the breath-taking rise in the cost of money."
"In other words, the end of the rate-hiking cycle is nigh."
"It’s been a hell of a journey, and there have been casualties along the way.
“Bond funds, LDI pension funds, mortgage holders, and more recently the banking sector, have all suffered as a result of higher interest rates."
"Given the tectonic shift we have seen in monetary policy in such a short space of time it’s surprising there haven’t been more breakages, and we may not yet be out of the woods on that score."
He thinks we may get one more increase, noting "we now have to wait almost another two months for the next interest rate decision, which allows for a lot of water to flow under the bridge."
Victoria Scholar, head of investment, interactive investor noted this was "eleventh rate increase since December 2021 as the central bank approaches the peak of its rate hiking cycle."
She highlighted the rise in the pound. "The upswing for cable (GBPUSD) has been exacerbated by recent weakness for the greenback, under pressure after the Fed carried out a dovish hike on Wednesday," she explained.
Jeremy Batstone-Carr, European Strategist at Raymond James (NYSE:RJF) (Raymond James (NYSE:RJF)) Investment Services thinks yesterday’s surprising inflation data all but forced the Bank of England to increase rates.
The timing of this hike is inconvenient, to say the least, given the current uncertainties in the banking sector, he felt, and because the Bank would ideally be nearing the end of its tightening cycle by now.
“Instead, with the worst inflation in the G7 and uncertainty over the current trend, the Bank may still be some distance away from pausing its rate hikes, unlike its American peer who signaled this week that the end of monetary tightening is on the horizon,” he commented.
Samuel Tombs at Pantheon Macroeconomics said the MPC has taken the edge off the 25bp hike in Bank Rate by downplaying the significance of the unexpected increase in CPI inflation in February and maintaining its guidance from last month that further tightening will be required only if there is evidence of more persistent inflation pressures than it expected.
He sees a strong case for expecting 4.25% to be the peak for Bank Rate. "A plethora of indicators point to an imminent sharp fall in inflation, and the recent pick-up in the growth rate of the workforce looks likely to endure, supported by government policies and cost of living pressures," he noted.
In addition, banks likely will raise lending interest rates modestly over the coming months in response to the recent increase in their funding costs.
Susannah Streeter, head of money and markets, Hargreaves Lansdown noted: "A banking curveball has been thrown into the Bank of England’s already tricky juggling act, but for now the eye of policymakers is still firmly trained on catching inflation and bringing it under control."
"The hotter than expected temperature of consumer prices in February, and the tight labour market are cause for concern, amid worries inflation could still become embedded in the economy."
But she thinks in May policymakers will press pause on rate hikes, as the lag effect of tightening across the economy comes into play.’’
Garry White, Chief Investment Commentator at Charles Stanley (LSE:CAY) (Charles Stanley (LSE:CAY)), agreed that the sharp rise in inflation drove the increase. He thinks there may be at least one more rate rise ahead, but we are probably close to the top of the cycle.