Rising inflation, uncertain growth and geopolitical backdrop will all factor in policy rate decision

by | Mar 15, 2022

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James Lynch, Fixed Income manager at Aegon Asset Management, expects policy rate to move to 0.75% on Thursday 17th March.

The March meeting of the Bank of England this Thursday comes amid a backdrop that was unthinkable when the Monetary Policy Committee (MPC) met on 3rd February.

Coming out of the February meeting the MPC were already in hawk mode. Although policy rate was increased from 0.25% to 0.50%, four members of the committee voted for a 50bps increase. We have since learned these votes were more about trying to get interest rates up faster to a more neutral setting (from extreme easy policy) rather than wanting rates to end up peaking at a higher level.

The MPC hawks were focusing on the 2nd round effects of inflation on a tight labour market which would see an increase in employee wages and exacerbate future inflation. We are starting to see an increase in wages which will make the MPC feel slightly uncomfortable.


From a Central Bank policy perspective, the horrific invasion by Russia on Ukraine means an increase in spot inflation and most likely for the rest of 2022 given the increase in commodity prices and supply chain disruptions – not only of the raw materials but also, components along various supply chains. They will also focus on a lower GDP for the UK given a likely slowdown coming from Europe and the hit to consumers due to the rise in costs.

We expect policy rate to move from 0.50% to 0.75% in March, however it is likely to be a split decision again. In terms of the language and forward guidance, we expect the tone to reflect the balancing act the BoE is going to face – higher inflation against an uncertain growth and geopolitical backdrop – and will rely heavily on survey data of consumer/business confidence and wage setting numbers.

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