London Daily

Focus on the big picture.
Friday, Dec 19, 2025

Bank of England on “collision course” with City over inflation and interest rates

Bank of England on “collision course” with City over inflation and interest rates

Some in the Square Mile want the Bank to move much more quickly as the economy recovers
The Bank of England looks increasingly at odds with the City over inflation and interest rates.

Some think the Old Lady of Threadneedle Street is on a collision course with the Square Mile, which fears rate setters are behind the economic curve.

This week the Bank’s Monetary Policy Committee meets to discuss interest rates and quantitative easing. No move in rates from record lows of 0.1% is remotely likely – it would be a shock if there were a shift.

And the Bank will probably hold its QE policy at £895 billion, ignoring calls from outgoing chief economist Andy Haldane to cut it by £50 billion.

Haldane has warned of the “beast of inflation” and thinks heat needs taking out of the economy right now.

The City is keen to at least see some sense of direction from the Bank about whether it might move interest rates before the US Federal Reserve does.

Inflation just hit 2.1%, going over the Bank of England’s 2% target for the first time in many months. Moreover, economists noted how quickly it seems to be rising, jumping from 1.5% previously.

Some think the Bank is too sanguine about inflation and should move interest rates up more quickly to head it off. So far, the Bank’s view – Haldane aside – has been that the recovery isn’t sufficiently embedded to take the risk of dampening consumer and business spending.

ING said in a note: “A recent speech by a normally-dovish committee member has sparked a debate on whether the Bank of England will hike rates in 2022, ahead of the Fed. We wouldn’t rule this out, though for now we’re in the camp looking for the first move in early 2023. Either way, we suspect policymakers will be keen to avoid offering new hints at Thursday’s meeting.”

The normally-dovish MPC member was Gertjan Vlieghe, who said last month that if the labour market proves stronger than expected rates could do up sooner than the City realises. Since then, most signs have employment – and most crucially, pay, well on the up.

The Bank of Canada is already talking about a rate hike in 2022, something that may give it first mover advantage among major economies emerging from the pandemic.

Last week the Fed was also hawkish, with observers now predicting it might move rates before the market expects.

Antoine Bouvet at ING said: “In reality, we don’t think the Bank will say anything particularly new on the timing of rate hikes at this next meeting…For now, we’re in the camp looking for the first-rate hike in 1Q23. We certainly wouldn’t rule out an earlier move though. Possible triggers could include a more rapid unwinding of household savings, given the economic outlook is particularly sensitive to even small percentage changes in the amount of the savings stockpile that is spent (the BoE assumes roughly 10%). Wage growth is also key, and there are already anecdotal reports of firms facing shortages of staff in hospitality, though our feeling is that this is likely to prove temporary.”

So the consensus remains that inflation spikes will be short-lived, but interestingly even economists sure of that are increasing their predictions for how high it will go.

Capital Economics now says it will peak at 2.9% later this year, up from a 2.6% forecast previously.

Even if this turns out to be right, there is a growing view that the Bank should at least signal that the crisis is past by moving rates up from extraordinary lows of 0.1%.

A move to 0.25% or 0.5% would still leave borrowing costs extremely low. If further economic woes emerge, the Bank would at that point at least have something to cut.

The MPC rules on Thursday. The City is watching with more than usual interest.
Newsletter

Related Articles

0:00
0:00
Close
UK Financial Conduct Authority Opens Formal Investigation into WH Smith After Accounting Errors
UK Issues Final Ultimatum to Roman Abramovich Over £2.5bn Chelsea Sale Funds for Ukraine
Rare Pink Fog Sweeps Across Parts of the UK as Met Office Warns of Poor Visibility
UK Police Pledge ‘More Assertive’ Enforcement to Tackle Antisemitism at Protests
UK Police Warn They Will Arrest Protesters Chanting ‘Globalise the Intifada’
Trump Files $10 Billion Defamation Lawsuit Against BBC as Broadcaster Pledges Legal Defence
UK Says U.S. Tech Deal Talks Still Active Despite Washington’s Suspension of Prosperity Pact
UK Mortgage Rules to Give Greater Flexibility to Borrowers With Irregular Incomes
UK Treasury Moves to Position Britain as Leading Global Hub for Crypto Firms
U.S. Freezes £31 Billion Tech Prosperity Deal With Britain Amid Trade Dispute
Prince Harry and Meghan’s Potential UK Return Gains New Momentum Amid Security Review and Royal Dialogue
Zelensky Opens High-Stakes Peace Talks in Berlin with Trump Envoy and European Leaders
Historical Reflections on Press Freedom Emerge Amid Debate Over Trump’s Media Policies
UK Boosts Protection for Jewish Communities After Sydney Hanukkah Attack
UK Government Declines to Comment After ICC Prosecutor Alleges Britain Threatened to Defund Court Over Israel Arrest Warrant
Apple Shutters All Retail Stores in the United Kingdom Under New National COVID-19 Lockdown
US–UK Technology Partnership Strains as Key Trade Disagreements Emerge
UK Police Confirm No Further Action Over Allegation That Andrew Asked Bodyguard to Investigate Virginia Giuffre
Giuffre Family Expresses Deep Disappointment as UK Police Decline New Inquiry Into Andrew Mountbatten-Windsor Claims
Transatlantic Trade Ambitions Hit a Snag as UK–US Deal Faces Emerging Challenges
Ex-ICC Prosecutor Alleges UK Threatened to Withdraw Funding Over Netanyahu Arrest Warrant Bid
UK Disciplinary Tribunal Clears Carter-Ruck Lawyer of Misconduct in OneCoin Case
‘Pink Ladies’ Emerge as Prominent Face of UK Anti-Immigration Protests
Nigel Farage Says Reform UK Has Become Britain’s Largest Party as Labour Membership Falls Sharply
Google DeepMind and UK Government Launch First Automated AI Lab to Accelerate Scientific Discovery
UK Economy Falters Ahead of Budget as Growth Contracts and Confidence Wanes
Australia Approves Increased Foreign Stake in Strategic Defence Shipbuilder
Former UK Prime Minister Boris Johnson proclaims, “For Ukraine, surrendering their land would be a nightmare.”
Microsoft Challenges £2.1 Billion UK Cloud Licensing Lawsuit at Competition Tribunal
Fake Doctor in Uttar Pradesh Accused of Killing Woman After Performing YouTube-Based Surgery
Hackers Are Hiding Malware in Open-Source Tools and IDE Extensions
Traveling to USA? Homeland Security moving toward requiring foreign travelers to share social media history
UK Officials Push Back at Trump Saying European Leaders ‘Talk Too Much’ About Ukraine
UK Warns of Escalating Cyber Assault Linked to Putin’s State-Backed Operations
UK Consumer Spending Falters in November as Households Hold Back Ahead of Budget
UK Orders Fresh Review of Prince Harry’s Security Status After Formal Request
U.S. Authorises Nvidia to Sell H200 AI Chips to China Under Security Controls
Trump in Direct Assault: European Leaders Are Weak, Immigration a Disaster. Russia Is Strong and Big — and Will Win
"App recommendation" or disguised advertisement? ChatGPT Premium users are furious
"The Great Filtering": Australia Blocks Hundreds of Thousands of Minors From Social Networks
Mark Zuckerberg Pulls Back From Metaverse After $70 Billion Loss as Meta Shifts Priorities to AI
Nvidia CEO Says U.S. Data-Center Builds Take Years while China ‘Builds a Hospital in a Weekend’
Indian Airports in Turmoil as IndiGo Cancels Over a Thousand Flights, Stranding Thousands
Hollywood Industry on Edge as Netflix Secures Near-$60 Bln Loan for Warner Bros Takeover
Drugs and Assassinations: The Connection Between the Italian Mafia and Football Ultras
Hollywood megadeal: Netflix acquires Warner Bros. Discovery for 83 billion dollars
The Disregard for a Europe ‘in Danger of Erasure,’ the Shift Toward Russia: Trump’s Strategic Policy Document
Two and a Half Weeks After the Major Outage: A Cloudflare Malfunction Brings Down Multiple Sites
UK data-regulator demands urgent clarity on racial bias in police facial-recognition systems
Labour Uses Biscuits to Explain UK Debt — MPs Lean Into Social Media to Reach New Audiences
×