UK households expect the Bank of England (BoE) to continue on its hawkish policy course when it decides on interest rates in the next two weeks, new data has shown.
According to the latest survey data from S&P Global, some 66% expect the central bank to raise the base rate of interest within the next three months, up from 61% in August. This was the highest reading since data collection began nine years ago.
The data, which surveyed 1,500 households across Britain, revealed that only 5% of households are expecting the next move to be a rate cut, the lowest proportion since March 2022.
The resulting net balance of 61% rose sharply from 55% in August, surpassing May’s peak of 59%, signalling the most hawkish expectations towards interest rates on record.
“This signals continued expectations amongst UK households that the central bank will maintain its hawkish policy stance and increase the base rate further to curb inflation, despite recent warning signs from business survey data that the economy has slipped into contraction, with weakening demand fundamentals exacerbated by the cost of living crisis,” S&P Global said.
Looking into 2023, 80% of UK households surveyed in September anticipate an increase in the base rate within the next six months, rising to 90% over the 12-month horizon, with both readings the highest on record.
Threadneedle Street’s Monetary Policy Committee (MPC) was due to meet on Thursday 15 September, but has been delayed until 22 September after the death of Queen Elizabeth II on Thursday 8 September.
The bank has so far hiked interest rates across six consecutive meetings in a bid to combat soaring inflation. Inflation hit 10.1% in the 12 months to July, up from 9.4% in June, the Office for National Statistics (ONS) revealed last month.
Energy, petrol and diesel costs all contributed to inflation, however, food and non-alcoholic drinks were the largest contributor to rising prices during the month.
Households views remain aligned with financial markets, which continue to price in a minimum 25 basis point hike and further hikes through the remainder of the year.
“UK households recorded their most hawkish expectations towards interest rates on record in September, with the net balance of households expecting an imminent rise in the base rate hitting a fresh peak of 61%,” Lewis Cooper, economist at S&P Global Market Intelligence, said.
“The next MPC decision comes off the back of concerning business survey data, which showed the UK economy slipping into contraction territory in August. These data also show that, while they have peaked, inflationary pressures remain stubbornly elevated.
“This suggests that although higher interest rates are working to bring down the rate of inflation, it’s becoming clear that the Bank of England’s policy decisions are having a negative impact in terms of economic growth of an increasingly larger magnitude.”
Meanwhile, Deutsche Bank (DB) said it expects the BoE to deliver its second consecutive 50bps hike, taking the bank rate to 2.25%.
It said: “On the vote split, we expect a messy outcome with a 2-5-2 (25/50/75) tally, with two members voting for 25bps and 75bps, respectively.
“On quantitative tightening (QT), we expect the MPC to confirm the start of gilt sales from late September, tracking at £10bn ($11.6bn) per quarter.”