Interest rates set to hit 13-year high | Personal finance | Finance

The Bank’s nine-member Monetary Policy Committee (MPC) is expected to vote unanimously in favor of a rate hike, which will be the sixth in a row.

The MPC began raising its base rate in December to rein in inflation, which is soaring due to high energy prices, geopolitical tensions and ongoing supply chain issues.

The base rate is currently 1.25% and many economists believe the MPC will go further than the City had expected.

Instead of raising the base rate by a quarter of a point, they think the MPC will want to act “forcefully” and raise it by 0.5 points to 1.75%.

Inflation, as measured by the consumer price index, is currently at 9.4% and is expected to peak at over 11%, driven by rising energy prices.

The official mission of the MPC is to bring inflation to 2%.

“We expect a 50 basis point rate hike from the Bank next week, its first such move in this cycle,” said ING Developed Markets Economist James Smith.

“Policymakers hinted in June that they could act forcefully to bring inflation down.”

“And with a 50 basis point move more or less built in, that’s what we expect from them.”

Paul Dales, chief UK economist at Capital Economics, said that since June “various members of the MPC have spoken strongly about inflation”. As a result, he said 0.5% hikes could become the norm as the MPC hikes its base rate up to 3%.

“We expect the MPC to step up its fight against high inflation at its meeting on Thursday by raising interest rates by 50 points from 1.25% to 1.75%, rather than repeating recent hikes. 25 points,” he said.

“Additionally, the MPC may imply that it is ready to raise rates by 50 points at future meetings if there are no signs that domestic price pressures are easing.”

“That would support our view that interest rates will peak at 3% rather than the analyst consensus of 2%.”

British Bank of America economist Robert Wood has warned that with the next Prime Minister expected to increase spending, which would likely add to inflationary pressures, the Bank will raise the base rate by 0.5% and not will not reduce for two years.

“The easing of fiscal policy combined with the likely persistence of inflationary pressures means we don’t assume any cuts before the end of 2024,” he said.

Comments are closed.