Pound banknotes are seen in this illustration
Pound banknotes are seen in this illustration taken January 6, 2020. Reuters

The Bank of England will lift the Bank Rate by 50 basis points on Feb. 2 to 4.00% and then add another 25 basis points in March before pausing, according to a Reuters poll of economists who said the greater risk was that it would do even more.

Britain's central bank was one of the first among global peers to begin raising borrowing costs and has added 340 basis points since it began the current cycle in December 2021 to tame inflation now running at more than five times its 2% target.

Prices jumped 10.5% in December from a year earlier, official data showed last week, as food and drink prices increased at their fastest pace since 1977.

A firm majority, 29 of 42 respondents to the Jan. 18-24 poll, said the Bank would add 50 basis points next Thursday. Thirteen opted for a more modest 25-basis-point rate rise.

Median forecasts in the poll showed the Bank would then add 25 basis points in March, giving a peak rate of 4.25%. It was last over 4.00% in late 2008.

Both the United States Federal Reserve and the European Central Bank are also nearing the end of their policy tightening campaigns, separate Reuters polls found.

Markets are pricing in a peak of 4.50% for Bank Rate. Governor Andrew Bailey said last week there was now more optimism about the prospects for inflation falling this year, noting the BoE had not pushed back against market expectations.

Inflation has proved sticky, however. When asked about the risks around their peak rate forecasts, 20 of 24 respondents to an additional question said the greater risk was that Bank Rate ends higher than they expect rather than lower.

"More resilient growth versus our forecasts should mean core inflation is likely to be stickier and give some space or force the BoE to hike a bit more than we forecast," said Raphael Olszyna-Marzys at J. Safra Sarasin.

Inflation has likely already peaked, but according to the poll it won't fall to the Bank's target until the end of next year. It will average 7.0% this year and 2.5% in 2024, the poll found, but will drop to 1.9% across 2025.


Britain's economy is almost certainly heading for a recession, with the poll giving that scenario a strong 75% chance within a year, albeit lower than the 85% probability given last month.

Gross domestic product contracted 0.3% in the third quarter but the poll said it flatlined last quarter, thus just dodging the technical definition of a recession.

However, the poll showed GDP falling 0.3% this quarter and next and 0.1% in the third quarter.

Still, when questioned, 20 of 24 respondents said the downturn was more likely to be shallower than they currently expect rather than deeper.

Across this year, the economy was predicted to contract 0.9% before growing 0.8% in 2024.

"The consumer will struggle in 2023, with the UK likely in a mild recession for much of this year as the lagged impact of higher interest rates quells growth prospects, adding to the effects of the cost-of-living crisis," said Ellie Henderson at Investec.

Workers, from rail staff and healthcare workers to teachers, have been taking industrial action to demand better pay as they face soaring costs.

(For other stories from the Reuters global economic poll:)

People walk over the Millennium Bridge with the City of London financial district in the background, in London
FILE PHOTO-People walk over the Millennium Bridge with the City of London financial district in the background, in London, Britain, January 13, 2023. Reuters