UK: Further rate hikes by the BoE in the pipeline – UOB

Economist at UOB Group Lee Sue Ann assesses the latest set of data releases in the UK economy.

Key Takeaways

“While the UK economy managed to avert a recession at the end of 2022; the fall in Jan’s PMIs shows the manufacturing sector kicking off 2023 on the back foot, in much the same way as it ended 2022. Consumer confidence is below levels seen during the financial crisis, COVID-19 pandemic, and recessions in both the 1980s and 1990s.”

“The latest jobs numbers suggest that the tight labour market will remain a stubborn source of domestic inflationary pressure for some months. Meanwhile, inflation remains in double digits, five times above the Bank of England (BOE)’s target. And there seems to be little signs that UK wage growth is slowing.”

“We are penciling in 25bps hikes at the next 2 meetings on 23 Mar and 11 May, seeing the Bank Rate peak at 4.5%. We recognize, though, the risks to our forecasts given the BOE’s challenge of fighting inflation amid a difficult economic outlook, as reflected by the range of views on the MPC at their last meeting on 2 Feb.”