INTEREST rates could rise sooner than markets expect, economists predicted over the weekend, as the Bank of England prepares to update its growth forecasts on Thursday.
Inflation could fall to zero in the coming months, pushing back expectations of an interest rate rise, and all nine members of the monetary policy committee last month voted to hold rates.
As a result, markets expect the first rate rise to come in mid-2016. But economists think that could be an overreaction.
“Market rate expectations have moved since November, now pricing a first hike well into the second half of 2016; but the factors determining the medium-term inflation outlook do not appear to have moved so convincingly,” said BNP Paribas’ economics team. “So, the inflation report may suggest an earlier hike.”
Barclays’ Fabrice Montagne also expects the impact of falling oil prices to drop out of the inflation figures rapidly.
“In the medium term, risks to activity and wages are biased to the upside,” he said.