The Bank of England is expected to raise interest rates to 4.5 per cent today, the highest since 2008, in the face of stubborn inflationary pressures and a stronger-than-expected economy.
The expected quarter-point increase would follow similar moves by the US Federal Reserve and European Central Bank last week.
It will be the monetary policy committee’s 12th consecutive rise and increase the cost of mortgage repayments for homeowners, adding to the biggest squeeze on households since the 1950s.
The Bank has raised interest rates by 4.15 percentage points since December 2021, making it one of the first monetary authorities to end the era of near-zero interest rates.
Inflation is still stuck above the MPC’s forecasts, coming in at 10.1 per cent in March rather than the 9.8 per cent in the Bank’s February projections, and significantly above its 2 per cent official target.
The National Institute of Economic and Social Research, one of the country’s oldest independent think tanks, expects the double-digit rate of inflation to fall to 5.4 per cent by the end of the year, falling short of the government’s aim to halve the headline rate of consumer price growth this year. The Bank forecast in February that inflation would fall to 3.9 per cent by the end of this year and below the 2 per cent target in 2024.
Alongside its interest rate decision the Bank’s economists will publish updated growth and inflation forecasts, which are expected to revise up gross domestic product this year and show a steeper fall in inflation.
At its last meeting in March, the nine-strong MPC emphasised that it would be ready to raise rates again in the face of “more persistent [inflationary] pressures”. Since then official data has shown that headline and core inflation is higher than expected, wage growth has not fallen significantly and food and grocery inflation are at record highs.
A majority of members of the Times shadow MPC, which is made up of former ratesetters, ex-Treasury officials and economists, said that the Bank should press ahead with another interest rate rise this week and avoid reacting too hastily to market fears over the health of the global banking system.
Two members said the Bank should stick with an outsized increase of 50 basis points, but a majority of five said a slower 25 basis-point change was more appropriate. One member, Sir John Gieve, said that the Bank should make no change to its base rate, which stands at 4.25 per cent.
Financial markets are expecting at least two more rate rises from the Bank this summer, even as the US Fed is expected to pause on its aggressive monetary action. The European Central Bank is projected to have to keep raising rates beyond both the Bank and the Fed.
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Bank of England expected to raise UK interest rates