Yahoo News Bank of England unlikely to raise interest rates further in 2023
S&P UK economic outlook suggests rates have peaked
The Bank of England (BoE) may have raised interest rates for the last time in this cycle, provided pay growth eases soon.
That’s according to the latest UK Economic Outlook report by S&P Global Ratings, which also highlighted that the pause came as core and services inflation reduced markedly in August, despite levels remaining high.
"Still, the bank will unlikely be put at ease until pay growth — still running at 7.8% in July — starts easing, too,” the report said.
The BoE opted to pause interest rate moves after 14 straight hikes, keeping its main policy rate at 5.25%.
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However, the BoE may not start lowering rates again until the second quarter in 2024, according to S&P Global.
“In the meantime, the impact of tighter financing conditions is already being felt throughout the economy, but still has some way to go before it reaches its full effect,” the report said.
Economic growth is set to remain muted well into next year, bringing the UK close to stagflation, under the lingering impact of high inflation and monetary policy rates “that will turn increasingly restrictive in real terms as inflation abates”, S&P Global said.
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It said it expects headline inflation to remain high but to gradually fall back close to the BoE's target of 2% in the second half of 2024.
“This fundamental view of the UK economy remains largely unchanged from our late June forecast. Even so, we have revised our forecast for this year slightly upward, to 0.3% from zero, but downward for 2024 to 0.5% from 0.8% in our previous forecast, shifting some of the slowdown into next year,” S&P said.
Meanwhile, the report said real wage growth has turned positive.
“Together with a labour market that should remain firm by historical standards, this should mitigate an otherwise constrained growth environment,” S&P Global said.
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