Barclays Adjusts Rate Forecast#
Barclays has updated its prediction for the Bank of England’s upcoming meeting in March, now anticipating that the central bank will keep its Bank Rate steady at 3.75%. This marks a shift from earlier expectations of a potential rate cut of 0.25%.
Factors Influencing the Decision#
In a recent note, Barclays pointed to several factors influencing this decision, including the ongoing conflict in the Middle East, rising energy prices, and heightened geopolitical uncertainty. These elements are likely to lead the Monetary Policy Committee to maintain current rates when they convene on March 19.
Barclays cautioned that consistently high energy prices could jeopardize its outlook for improving economic growth and achieving the inflation target of 2%. A prolonged energy crisis, particularly with potential disruptions in key trade routes like the Strait of Hormuz, could negatively impact the UK economy and contribute to rising inflation.
Economic Indicators#
Recent data shows that the UK’s real GDP did not grow in January, falling short of Barclays’ forecast of a 0.1% increase. Industrial production also saw a slight decline of 0.1%, while services activity remained unchanged. Notably, mining and quarrying experienced a significant drop of 3.2%, although manufacturing saw a modest growth of 0.1%.
Inflation and Employment Outlook#
The Bank of England/Ipsos inflation expectations survey indicated a decrease in 12-month inflation expectations to 3.2%, down 0.3 percentage points from the previous quarter. However, long-term expectations remained stable at 3.7%. Barclays predicts that the unemployment rate will rise to 5.3% in the upcoming January labor market report, alongside a slight increase in private sector wage growth to 3.5%.
Higher energy costs are expected to dampen consumer spending and real income growth, potentially leading to supply chain issues in manufacturing. In response to a prolonged energy crisis, the government may consider targeted fiscal measures to support businesses and households, although options are limited due to constrained fiscal space.