Bank of England may raise rates again
2023.02.21 14:21
Bank of England may raise rates again
By Ray Johnson
Budrigannews.com – After a survey revealed a surprise return to growth by businesses this month, Britain appears on track to avoid a prolonged recession. This makes it more likely that the Bank of England will raise interest rates in March.
The S&P Global/CIPS UK Composite Purchasing Managers’ Index (PMI) preliminary “flash” reading increased to 53.0 in February from 48.5 in January, surpassing the 50 threshold for growth for the first time since July.
A poll conducted by Reuters of more than twenty economists indicated a reading of 49.0, but it exceeded all forecasts.
Sterling saw its biggest gains in a month against the dollar and the euro, while British government bond prices fell as a result of the PMI reading, which was higher than readings for both France and Germany.
Economists said that despite further signs of price pressures being eased in the PMI, the strength of the survey made it more likely that the BoE, which is struggling with inflation that is still above 10%, would raise interest rates to 4.25 percent in March.
According to J.P. Morgan economist Allan Monks, “The report poses a clear challenge to the BoE’s central view that a long recession and rise in unemployment will bring inflation down such that further rate increases are not required.”
The likelihood of the Bank Rate increasing next month is now 95%, up from 90% early on Tuesday.
Public finance data also showed signs of unexpected economic strength, with income and corporate tax revenues rising in January.
In his budget for March 15, Finance Minister Jeremy Hunt is being pressured by Conservative Party members to lower taxes and by trade union members to raise pay for public sector employees.
However, he remained true to his message that a debt burden of almost 2.5 trillion pounds, or nearly 99% of economic output, must be addressed.
Financial information provider S&P Global (NYSE:) attributed the PMI survey’s improved reading to the dominant services sector. put down to increased global demand and stability following the market turmoil brought on by Liz Truss’ brief reign as premier.
Importantly for the BoE, businesses’ costs increased at the slowest rate since April 2021, according to PMI price indexes, a reliable indicator of future inflation pressure.
Manufacturing activity continued to contract, albeit less severely, with the manufacturing PMI increasing to 49.2 from 47.0, close to 50, the no-change mark, in February. This occurred despite the fact that the services sector’s PMI increased to 53.3 from 48.7 in January, making it the highest reading since June of last year.
Similar to the PMI, a survey conducted by the Confederation of British Industry and released on Tuesday revealed declining orders and output, as well as decreasing cost pressures.
More and more businesses in manufacturing and services were feeling better about their prospects.
A Barclays (LONDON:) A nine-month high of 41% of small and medium-sized businesses surveyed expressed optimism regarding the outlook.
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