Inflation expectations rise together with stagflation risks, economists still predict that the Bank of England will maintain its status quo throughout the year.

According to a survey of economists, they expect the Bank of England to maintain interest rates next week and possibly keep them at this level for the whole year. Economists overall have continued last month's stable policy stance but have increased inflation expectations. Despite financial markets quickly factoring in a series of interest rate hikes last month due to concerns about the US-Iran war pushing up energy costs and the need for policy action, economists have not followed suit and have stuck to their original views. The Monetary Policy Committee's statutory task is to control inflation at 2%, but the survey shows that pre-war inflation rates are already well above this target, and will increase significantly in the coming months before falling back in early next year. It is worth noting that Bank of England Governor Andrew Bailey stated earlier this month that investors should not see an interest rate hike as a certainty, and most forecasters already held the same view. With the current financial environment significantly tightening, this seems to make them more inclined to accept Bailey's statement. Currently taking a "wait-and-see" approach Most respondents believe that the risk of stagflation is high - stagflation is generally defined as a mix of slow economic growth, rising unemployment, and sustained price increases - which provides additional reasons to keep borrowing costs stable, as using interest rate tools to solve one problem may exacerbate another. In a survey conducted from April 16 to 21, all 62 economists expected the Bank of England to keep the bank rate unchanged at 3.75% on April 30, with about 53% (33 out of 62) believing that rates will remain unchanged for the rest of the year, similar to the results of the survey conducted from March 20 to 26. Fourteen people expected at least one rate hike, while 15 expected either one or multiple rate cuts. In a survey in March, fewer than 10% of people expected rate hikes, while about a third predicted rate cuts. Investec economist Ellie Henderson pointed out: "The message from the Bank of England is 'we have implemented restrictive policies,' and unless it is found that the current inflation surge may affect long-term expectations, the appropriate policy path is to stand firm and wait and see, avoiding hasty rate hikes - especially if this may be just a one-time price shock." The latest data showing stronger-than-expected economic growth in February is also one of the reasons policymakers are temporarily maintaining stability. However, the Bank of England's chief economist Hugh Pill, who is one of the most hawkish members of the Monetary Policy Committee, warned on Friday that a wait-and-see approach could be misinterpreted as being neutral on the threat of high inflation. Official data released on Wednesday is expected to show that inflation will rise from 3.0% in February to 3.3% in March, but this data is unlikely to change current rate expectations. Lawrence Mutkin, head of interest rate strategy for Europe, the Middle East, and Africa at Montreal Bank, said: "The post-war bond market trend has already significantly tightened monetary conditions, and hopefully this will be enough to curb inflationary pressures." High stagflation risk Nearly 75% of respondents lowered their growth expectations for this year, with a median of 0.7%, compared to 1.0% in the March survey. The International Monetary Fund recently lowered its growth forecast for the UK from 1.3% to 0.8%. Among respondents who participated in both the April and late-March surveys, more than half - 11 out of 21 - raised their inflation forecasts for the UK in 2026, with an average increase of over 0.4 percentage points. The survey shows that the average expected inflation rate is 3.2%. When asked about the risk of stagflation in the UK economy, 17 out of 22 economists considered the risk to be high to very high, with only 5 considering it low. In sharp contrast to inflationary pressures, the UK labor market has begun to show signs of significant weakness. The latest data shows that the number of redundancy warnings in March reached a new high in recent years, signaling that the labor market is rapidly cooling. With the dual pressures of soaring energy costs and a high-interest-rate environment, business expansion intentions have cooled to freezing point, and job vacancies continue to decline. Tax data released by the UK Office for National Statistics on Tuesday showed that the number of employees on payrolls decreased by 11,000, the largest drop since November last year and double the drop in February. This result was worse than economists' previous expectations of stability. These data indicate that the ongoing seven-week conflict is putting new pressure on the job market. Previously, after the impact of Prime Minister Keir Starmer's Labour government's significant increase in wage taxes and minimum wages, the job market showed initial signs of stability. Currently, job vacancies have dropped to their lowest level in nearly five years. While the rise in unemployment has weakened workers' bargaining power to some extent, helping alleviate the "wage-price spiral" style inflation, it has also exposed serious weaknesses in economic growth momentum. Montreal Bank's Mutkin said that since the outbreak of the Middle East war, the UK economy has become more stagflationary. "There were already signs of this in the UK, with high inflation and a softening labor market - the energy shock has only exacerbated this trend."