Analysts’ expectations of a Bank of England rate rise have been pushed back – swayed by
speculation over how the current crisis in Japan will affect the global economy.
At the end of last week, financial markets were betting on a quarter-point rise from 0.5 to 0.75 per
cent in June. However, experts now believe the base rate may not rise until as late as August, with a
further increase next February.
Icap economist Don Smith said: “This is a big move for the market. We were expecting three
rate rises up to February next year. Now there will only be two. This is because there is so much
uncertainty due to the Japanese situation. The global economy could take a big knock.”
Comments from John Wraith, a strategist at BofA Merrill Lynch, echoed the sentiment: “There are
concerns that the Japanese disaster could derail the recovery. The oil price could also hit growth. In
fact, it could put the whole global recovery at risk.”
Oil markets in particular are experiencing volatility due to political unrest in North Africa and the
Middle East – and the recent earthquake and tsunami in Japan only adds to this unpredictability.
January’s surge in oil prices to over $100 a barrel increased concerns about economic growth, and
some analysts have issued stark warnings that the global economy could fall into a double-dip
recession.
Japan’s position as one of the world’s biggest exporters has led many strategists to conclude that
slowing economic growth may present a greater risk than inflation.
