Bank of England may lift interest rate to 3.5%

The Bank of England may consider raising the interest rate to 3.5% next week. Policymakers raise doubts over whether further policy tightening is needed as the economy is showing signs of a slowdown near recession levels.

The Bank of England may opt for a 0.5 percentage point hike at the meeting set for December 15. The probability of such an outcome averages 78%. There is a 22% chance that it will go for a 0.75 percentage point increase. 

Investec economist Philip Shaw believes that a 0.5% rate hike is more likely. In his view, the Bank of England expresses concerns about inflation data and labor market tightness. The bank's forecasts are subject to huge risks.

HSBC economist Liz Martins noted that the Bank of England could approve another 0.75% rate hike. It will correspond with stronger output, inflation and labor market data that may be seen next week. 

Financial markets anticipate that rates will peak at around 4.75% by the middle of next year. HSBC is betting on rates peaking at 3.75% in February. Investec expects the Bank of England to stop hiking interest rates at 4%.