The idea that UK interest rates are close to their peak gained ground as a survey published today showed firms expect price and wage growth to slow.
A divergence in the direction of the pound (weakening) against the dollar (stronger) also suggests slowing UK rates, said economists.
James Smith, developed markets economist, at ING Economics, highlighted the latest decision-making panel update from the Bank of England, which surveys chief financial officers on a range of topics and which continues to point towards lower inflation.
In the past the BoE has put a lot of emphasis on the survey, he explained, but more recently it has been visibly wary about putting too much weight on survey data while actual data on inflation and wage growth continues to come in hot.
Nonetheless, Smith said: “With two weeks to go until the next Bank of England rate decision, there’s a growing sense that the rate hike cycle is reaching its peak.”
The survey showed expected price growth over the next year at 4.4% (or 4.9% if you average the last three readings), the lowest since November 2021, with expected wage growth at 5.1% on a three-month moving average, down from 5.2% last month and 6% last December.
“On the face of it, this all provides further ammunition for the Bank of England doves and echoes what we’ve been seeing in other surveys too,” Smith said.
“The bottom line is that the Bank is likely to hike rates by 25 basis points again in two week’s time, but our base case is that this is the last hike in this tightening cycle.”
“Governor Andrew Bailey's indication that we're near the top of the tightening cycle came wrapped with several caveats.”
“But it fits into a broader communication exercise from the Bank that appears to be laying the ground for a pause,” Smith said.