Bank of England set to hike interest rates to 13-year high amid cost crisis

Interest rates are set to be raised again on Thursday to their highest level in 13 years as the Bank of England struggles to calm soaring inflation (Yui Mok/PA)

Interest rates are set to be raised again on Thursday to their highest level in 13 years as the Bank of England struggles to quell runaway inflation.

Bank policymakers are expected to raise rates from 0.75% to 1% – a level not seen since early 2009 – and raise their inflation forecasts as the war in Ukraine worsens a crippling cost of living crisis.

Members of the Monetary Policy Committee (MPC) have already raised rates at each of its last three meetings in an attempt to contain inflation, which hit a 30-year high of 7% in March.

The cost crisis is expected to tighten its grip later this year when the energy price cap is revised again, with warnings that inflation could peak at 9% or even double digits in the fall.

The UK is in the throes of the cost of living crisis. Coupled with tax hikes, this leaves a road strewn with pitfalls

Investec

As households and businesses tighten their belts in the face of cost pressures, UK growth is set to suffer and the Bank is also expected to revise its economic outlook down on Thursday, experts said.

Investec economists said: “The UK is in the throes of a cost of living crisis.

“Coupled with tax hikes, this leaves a road strewn with pitfalls.”

They expect a recession to be averted, largely thanks to savings accumulated by households during the pandemic, but said slowing growth and soaring inflation “leave the MPC in deadlock”.

Investec expects another rate hike in August to 1.25%.

But he sees the Bank pausing after that “to assess the extent of the effect of the real income squeeze on activity”, before pushing through two more rate hikes in 2023.

Growth already started to decline sharply in February as pressure on the cost of living set in, with official data showing an expansion of just 0.1% from 0.8% in January.

The Bank said last month it estimated growth would come in at around 0.75% in the first quarter, up from a previous forecast of flat gross domestic product (GDP), the market for job is also holding up well.

But many experts see GDP stagnating in the second quarter as consumer confidence weakens amid mounting price pressures.

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